I was looking at company twice so far. Once when it was extremely expensive and secondly after share price dropped from top to around $35 in June. Currently share price is the same. For growing company when share price is flat it means that value for money is increasing. Is it a case of Hormel Foods and is it a right time to buy?

Let’s look on last financial results:

  • Record diluted earnings per share of $0.45, up 29 percent from 2015 GAAP EPS of $0.35; diluted EPS up 22 percent from non-GAAP1 adjusted diluted EPS2 of $0.37
  • Record net earnings of $244 million, up 30 percent from 2015 GAAP net earnings of $187 million; net earnings up 22 percent from non-GAAP1 adjusted net earnings2 of $200 million
  • Record dollar sales of $2.6 billion, up 9 percent; volume up 9 percent

Results are very good. I prefer buying shares when results are depressed so there is more growth potential, but still strong double digit dynamics are not common among big US companies (even if we consider acquisitions).

Secondly let’s look on financial outlook for 2017:

“In fiscal 2017, we expect to generate organic sales growth consistent with our long-term goal of five percent coupled with mid-single-digits earnings growth (…) Taking all these factors into account and considering the previous three years of strong double digit earnings increases, we would have expected our fiscal 2017 earnings guidance range to be $1.71 to $1.77 per share,” commented Snee. “However, after excluding earnings from the Farmer John divestiture of approximately 3 cents per share, we are setting our fiscal 2017 earnings guidance range at $1.68 to $1.74 per share,” Snee said.

Good momentum should continue.

Let’s look on valuation (next year consensus):

P/E = 21

EV/EBITDA = 11.7

Still very expensive. Dividend yield is around 2% and is growing dynamically (dividends increase in double digit pace). There are no significant buyback (there is some small dilution).

 

Summing up, business momentum is good, results are growing and these factors should be supporting for Hormel Foods. Valuation for now is neutral/a little bit too high for me. I think that company can outperform market in the next year, but for me it is not a super x-mas opportunity to buy.

 

Disclosure HRL – no position