Tuesday, October 21, 2014

Hormel (HRL) 2014 Review

Hormel Foods is an international manufacturer and marketer of consumer branded meat and food products which are sold fresh, frozen, cured, smoked, cooked and canned (Hormel, Always Tender, Cure 81, SPAM, Dinty Moore, Jennie-O, Mary Kitchen, Little Sizzlers, Chi-Chi’s, Skippy and Kid’s Kitchen).  HRL has grown profits and dividends at an 11-12% annual rate for the past 10 years earning a 15% return on equity.  Despite rising feed costs, the company should continue to grow as a result of:

(1) diversified product portfolio,

(2) aggressive new advertising campaign,

(3) acquisitions, especially in the high margin ethnic food category,

            (4) aggressive cost reductions.

Negatives:

(1) highly competitive industry,

(2) its cost of goods sold are largely commodities; therefore, volatile prices can impact margins,

(3) its international exposure subjects it to currency fluctuations and foreign regulations.

Hormel is rated A by Value Line, has a 7% debt to equity ratio and its stock yields approximately 1.8%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                Yield      Growth Rate     Ratio       Since 2004

HRL          1.8%          11%              34%           10
Ind Ave      2.4              8                  36             NA 

                Debt/                      EPS Down       Net        Value Line
               Equity         ROE      Since 2004      Margin       Rating

HRL          7%             16%            1                 7%           A
Ind Ave     37               13             NA               7             NA

       Chart

            Note:  HRL stock made great progress off its December 2008 low, quickly surpassing the downtrend off its April 2008 high (straight red line) and the November 2008 trading high (green line).  Long term, the stock is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  The wiggly red line is the 200 day moving average.  The Dividend Growth Portfolio owns a 75% position in HRL---it Sold Half in early 2013 and the stock has continued to advance.   The upper boundary of its Buy Value Range is $22; the lower boundary of its Sell Half Range is $41.   




10/14

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