Hormel Foods Corporation (HRL - Get Rating) in Austin, Minn., is a global branded food company with more than $11 billion in annual revenue and operations in more than 80 countries. Its branded portfolio includes Planters, SKIPPY, SPAM, Hormel Natural Choice, Applegate, Justin’s, WHOLLY, Hormel Black Label, Columbus, and more than 30 well-known brands. The company’s shares have gained 17.2% in price over the past six months to close yesterday’s trading session at $49.75.

In addition, HRL’s dividend payouts have grown at a 10.5% CAGR over the past five years. While its four-year average dividend yield is 1.95%, its current dividend translates to a 2.1% yield. It paid a $0.26 per share dividend on Feb. 15, 2022.

However, Goldman Sachs analyst Adam Samuelson downgraded the stock to “Sell” from “Neutral” with a $44 price target, indicating a 12.07% downside. The analyst fears the Russia-Ukraine war might become one of the most disruptive crises in the food and agricultural supply chain, affecting HRL’s growth prospects

Here is what could shape HRL’s performance in the near term:

Mixed Profitability

HRL’s $1.18 billion trailing-12-months cash from operations is 201% higher than the $392 million industry average. However, HRL’s 17.1% trailing-12-months gross profit margin is 48.7% lower than the 33.4% industry average. Also, its trailing-12-months EBITDA margin and CAPEX/Sales multiple are 7.8% and 31.3% lower than their respective industry averages.

Price Target Indicate Potential Downside

The $48.86, 12-month median price target indicates a 1.8% potential upside. The price targets range from a low of $44.00 to a high of $57.00.

POWR Ratings Reflect Uncertainty

HRL has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HRL has a D grade for Sentiment and a C for Quality. The consensus price target is in sync with the Sentiment grade. In addition, the company’s mixed profitability is consistent with the Quality grade.

Among  the 84 stocks in the B-rated Food Makers industry, HRL is ranked #67.

Beyond what I have stated above, one  can view HRL ratings for Growth, Momentum, Stability, and Value here.

Bottom Line

Though the company has shown solid resilience against inflationary pressures and other macroeconomic headwinds, analysts think the Russian-Ukraine war could significantly impact HRL’s operations. In addition, given its mixed profitability and consensus price targets, we believe investors should wait before investing in the stock.

How Does Hormel Foods Corporation (HRL) Stack Up Against its Peers?

While HRL has an overall C rating, one might want to consider its industry peers, Sandersons Farms Inc. (SAFM - Get Rating), Thorne Healthtech Inc. (THRN - Get Rating), and Lifeway Foods Inc. (LWAY - Get Rating) which have an overall A (Strong Buy) rating.

HRL shares were unchanged in premarket trading Tuesday. Year-to-date, HRL has gained 2.46%, versus a -6.21% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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