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Hormel Foods Corp HRL Stock Quote

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Morningstar‘s Stock Analysis HRL

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Hormel’s Q3 Results Were in Line With Our Expectations, but Shares Weak on Rich Valuation

Rebecca Scheuneman, CFA Senior Equity Analyst

Analyst Note

| Rebecca Scheuneman, CFA |

After narrow-moat Hormel’s fiscal third-quarter report, we don’t expect a material change to our $37.50 fair value estimate. We suggest investors remain on the sideline as the stock trades at a 25% premium to our valuation despite a 7% drop in the shares on the report. Hormel’s 3% organic sales growth was driven by a 14% increase in prices, partially offset by an 11% drop in volumes (exacerbated by a short supply of turkey given avian flu, temporary closure of its plants in China due to COVID-19, and the exit of commodity pork businesses). Elasticities remain favorable compared with historical norms per management, but we suspect that persistent inflation could cause consumers to switch to private-label fare, which is readily available in many of Hormel’s categories. Skippy benefited from a wide recall of Jif products (owned by no-moat Smucker), and Hormel also saw robust demand for labor-saving products in the food-service channel, given widespread worker shortages.

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Key Statistics HRL

Company Profile HRL

Business Description

Hormel Foods is a protein-focused branded food company. Its brands include its namesake Hormel, Spam, Jennie-O, Dinty Moore, Applegate, Wholly Guacamole, and Skippy. The vast majority of the company’s revenue is U.S.-based: 64% U.S. retail, 28% U.S. food service, and 8% international. By product type, in fiscal 2021, 23% of revenue was shelf-stable foods, 18% was poultry (branded and commodity), 55% was other perishable food, and 3% was other, primarily nutritional products. The company holds the number-one market position in shelf-stable meat, shelf-stable ready meals, pepperoni, natural/organic deli meat, and guacamole and the number-two position in turkey, bacon, chilled ready meals, and peanut butter.

1 Hormel Place
Austin, MN, 55912-3680
T +1 507 437-5611
Industry Packaged Foods
Most Recent Earnings Jul 31, 2022
Fiscal Year End Oct 25, 2021
Employees 20,000

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