Hormel Foods Corp (HRL, Financial) experienced a daily loss of 7.23%, with a 3-month loss of 6.96%. Its Earnings Per Share (EPS) (EPS) stands at 1.61. With these figures, we ask: is the stock significantly undervalued? This article provides a comprehensive valuation analysis of Hormel Foods (HRL), offering insights into its intrinsic value and potential for future returns.
Company Overview
Hormel Foods Corp (HRL, Financial), traditionally a meat-focused entity, has expanded its product line to include a variety of protein offerings, transitioning into a branded food company. The company distributes its products through multiple channels, including U.S. retail (63% of fiscal 2022 sales), U.S. food service (31%), and international (6%). Major brands under Hormel Foods include Hormel, Spam, Jennie-O, Columbus, Applegate, Planters, and Skippy, many of which hold the number one or two market share in their respective categories.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
From our analysis, Hormel Foods (HRL, Financial) appears to be significantly undervalued. The GF Value estimates the stock's fair value at $50.13, significantly higher than its current price of $33.61 per share. Hormel Foods has a market cap of $18.40 billion, further indicating that the stock is significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Hormel Foods has a cash-to-debt ratio of 0.21, which ranks worse than 66.18% of 1792 companies in the Consumer Packaged Goods industry. The overall financial strength of Hormel Foods is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Hormel Foods has been profitable 10 years over the past 10 years, with an operating margin of 9.18%, ranking better than 70.45% of 1834 companies in the Consumer Packaged Goods industry. The overall profitability of Hormel Foods is ranked 8 out of 10, indicating strong profitability.
Company growth is a crucial factor in valuation. Hormel Foods's 3-year average revenue growth rate is better than 59.64% of 1712 companies in the Consumer Packaged Goods industry. However, its 3-year average EBITDA growth rate is 4.5%, which ranks worse than 52.9% of 1518 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Hormel Foods's ROIC was 7.66, while its WACC came in at 6.26.
Conclusion
In conclusion, Hormel Foods (HRL, Financial) stock appears to be significantly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 52.9% of 1518 companies in the Consumer Packaged Goods industry. To learn more about Hormel Foods stock, you can check out 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.
