Hormel Foods is an American packaged food company, which owns famous brands like Spam, Chi-Chi’s, Skippy, Muscle and many more.

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Business model is very stable and growth is generated mainly on new markets. Over the last five years CAGR in sales was around 7% and EPS growth was around 12%.

 

As it comes to financials (estimates):

Market cap ~ $22.5B

Net cash ~$0B

Payout ratio ~75%

Return on equity ~19%

Beta = 0.7

Dividend yield 2.7%

 

Estimated valuation ratios:

EV/EBITDA = 15.5

P/E = 27.6

 

Hormel Foods (HRL) should become in 2016 The Dividend King (company is paying increasing dividends since 1967 year). Currently dividend yield is around 2.7% – nothing special both nominally and from historical point of view. Moreover buybacks are not significant, payout ratio is high and valuation is extremely demanding in my opinion.

 

Drawdown risk analysis:

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Hormel Foods’ business is extremaly stable what is reflected in share price performance. Share are around all time high, valuation is demanding and for the last year shares are +50%…. no story for me. I will look again when share price falls to around $25.

 

Summing up, Hormel Foods is a perfect business for long term dividend investors, but I do not think that currently it is a right time to buy shares. Everything seems ok with company. It is simply too expensive.

 

Disclosure HRL – no position