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Hormel Foods Corp HRL

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Morningstar’s Analysis

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Hormel Closes Successful Q1 and Looks Forward to Planters Acquisition, but Shares Look Rich

Analyst Note

| Rebecca Scheuneman, CFA |

Hormel’s fiscal first-quarter sales grew 3%, as growth in U.S. retail (13%), U.S. deli (7%), and international markets (9%) more than offset the 17% drop in the U.S. food-service channel. Given $15 million (60 basis points) of direct COVID-19 expenses, the operating margin contracted 90 basis points to 10.9%. Management issued fiscal 2021 guidance (excluding Planters) for sales of $9.7 billion-$10.3 billion and EPS of $1.70-$1.82, relatively in line with our pre-Planters estimates of $9.8 billion and $1.83, respectively. Including the accretive Planters deal, we plan a 4% bump to our $34.50 fair value estimate, which takes our 2030 operating margin to 14.3% from 13.9% previously. Even so, Hormel shares trade at a 30% premium to our revised valuation, and we suggest investors consider 4-star, no-moat Pilgrim’s Pride instead.

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Company Profile

Business Description

Hormel Foods is a protein-focused branded food company. Its brands include its namesake Hormel, Spam, Jennie-O, Dinty Moore, Applegate, Wholly Guacamole, and Skippy. The vast majority of the company’s revenue is U.S.-based: 67% U.S. retail, 26% U.S. food service, and 7% international. By product type, in fiscal 2020 22% of revenue was shelf-stable foods, 20% was poultry (branded and commodity), 55% was other perishable food, and 3% was other, primarily nutritional products. The company holds the number-one market position in shelf-stable meat, shelf-stable ready meals, pepperoni, natural/organic deli meat, guacamole, and the number-two position in turkey, bacon, chilled ready meals, and peanut butter.

1 Hormel Place
Austin, MN, 55912-3680
T +1 507 437-5611
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Jan 31, 2021
Fiscal Year End Oct 25, 2021
Stock Type Slow Growth
Employees 20,100