Amidst a fluctuating market, Hormel Foods Corp (HRL, Financial) experienced a daily loss of 5.52%, contrasting with a 3-month gain of 7.5%. With an Earnings Per Share (EPS) of $1.46, investors are contemplating whether the stock is modestly undervalued. This article delves deep into Hormel Foods' valuation, providing insights that could influence your investment decisions. Read on for a detailed analysis of Hormel Foods' intrinsic value and market potential.
Company Introduction
Hormel Foods Corp (HRL, Financial), historically known for its meat-centric products, has expanded its portfolio to include a diverse range of protein-rich foods, establishing itself as a branded food company. Hormel Foods markets its products through various channels, with U.S. retail accounting for 64% of fiscal 2023 sales, U.S. food service at 30%, and international sales contributing 6%. Its product mix for fiscal 2022 comprised 53% perishable food, 27% shelf-stable items, 17% poultry, and 3% other products. Brands like Hormel, Spam, Jennie-O, Columbus, Applegate, Planters, and Skippy are not only household names but also leaders in their respective categories. With the current stock price at $33.37 and a market cap of $18.20 billion, the comparison to the GF Value, estimated at $45.85, suggests that Hormel Foods may be modestly undervalued.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, taking into account historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and estimates of future business performance. When the price of Hormel Foods (HRL, Financial) stock is significantly below the GF Value Line, it suggests a potential for higher future returns. Our analysis indicates that Hormel Foods is modestly undervalued, which may lead to higher long-term returns compared to its business growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Hormel Foods' cash-to-debt ratio of 0.3 positions it below 61.69% of its peers in the Consumer Packaged Goods industry. Despite this, Hormel Foods' financial strength is rated a solid 7 out of 10 by GuruFocus, indicating a fair balance sheet.
Profitability and Growth
Companies that consistently deliver profits tend to be less risky investments. Hormel Foods has maintained profitability for 10 years, with a 12-month revenue of $12.10 billion and Earnings Per Share (EPS) of $1.46. Its operating margin of 8.67% ranks higher than 67.83% of competitors in the Consumer Packaged Goods industry, indicating strong profitability. The company's 3-year average annual revenue growth rate of 7.9% is also commendable, outperforming 53.1% of industry peers. However, its 3-year average EBITDA growth rate of -0.2% falls short when compared to others in the industry.
Return on Invested Capital vs. Weighted Average Cost of Capital
An effective measure of a company's profitability is the comparison between its Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). Ideally, the ROIC should exceed the WACC. Hormel Foods has a ROIC of 7.1 and a WACC of 6.04 for the past 12 months, indicating efficient cash flow generation relative to its capital investment.
Conclusion
In conclusion, Hormel Foods (HRL, Financial) appears to be modestly undervalued. The company exhibits fair financial health and robust profitability. Although its growth ranks below some of its industry counterparts, the overall analysis suggests potential for future value appreciation. For a more comprehensive understanding of Hormel Foods' financial trajectory, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
