Hormel Foods Corporation

HRL Details

Hormel Foods Corporation (NYSE: HRL) is primarily engaged in the production of meat and food products and the marketing of these products are done throughout the USA and internationally.

Quarterly Result Performance for the Period Ended 25 July 2021 (Q3FY21)

• Significant net sales in Q3FY21 stood at $2.9 billion, up 20% YoY, primarily driven by strong growth across segments and sales channels. Overall volumes in Q3FY21 increased by 1% YoY to 1.2 billion lbs
• The company witnessed a 14% YoY decline in diluted earnings per share to $0.32 in Q3FY21, while adjusted diluted earnings per share increased to $0.39 in Q3FY21, up 5% YoY.
• The cash flow from operations stood at $77 million in Q3FY21, down 77% YoY owing to a rise in inventory due to a phenomenal increase in raw material costs.

Consolidated Financial Snapshot (Source: Company Reports) 

Key Updates

• As per the release dated 27 September 2021, the company stated its quarterly dividend on the common stock at 24.50 cents ($0.2450) a share that will be paid on 15 November 2021, to equity holders of record at the close of 18 October 2021

Outlook

The company plans to deliver record sales as well as an improvement in margins in Q4FY21 driven by favorable pricing actions. Further, the company remains positive about the future owing to its balanced and diversified portfolio, several targeted investments, and the benefit of acquisition of the Planters brand.

Guided for FY21: Earnings per share to stay in the range of $1.65-$1.69 and net sales are expected to be in the ambit of $11.0- $11.2 billion, considering the acquisition of Planters snack nuts business.

Key Risks

The company is exposed to the risk of changes in national or global economic conditions that could adversely hurt its business. Further, the company is susceptible to the risk of reduction in consumer spending rates as well as shifts in consumer product preferences.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

Over the last three and six months, the stock price was down by ~14.3% and ~15.9%, respectively. The stock is trading lower than the average price of 52-week low-high range for the stock at $40.56 - $52.51, respectively.

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects the potential rise of low double-digit (in % terms). A slight discount has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the decline in operating margin in Q3FY21 and the expected inflationary cost pressures on the business in FY21.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the current market price of $40.94 per share, up by 0.34% as of 27^th September 2021. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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