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.