HRL Falls 13% In A Single Week, Now Is Not The Time To Buy The Stock

We believe there are a few things to fear in HRL stock given its overall Weak operating performance and financial condition. This isn’t appropriately reflected in the stock’s Moderate valuation which is why we think it is Unattractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $14 Bil in market cap, Hormel Foods provides meat, nuts, and diverse food products across grocery, refrigerated, turkey, and international segments, including fresh meats, frozen meals, sausages, snacks, and shelf-stable items.

[1] Valuation Looks Moderate

This table highlights how HRL is valued vs broader market. For more details see: HRL Valuation Ratios

[2] Growth Is Inconsistent

• Hormel Foods has seen its top line shrink at an average rate of -1.5% over the last 3 years
• Its revenues have grown 0.6% from $12 Bil to $12 Bil in the last 12 months
• Also, its quarterly revenues grew 4.6% to $3.0 Bil in the most recent quarter from $2.9 Bil a year ago.

This table highlights how HRL is growing vs broader market. For more details see: HRL Revenue Comparison

[3] Profitability Appears Weak

• HRL last 12 month operating income was $956 Mil representing operating margin of 7.9%
• With cash flow margin of 7.7%, it generated nearly $931 Mil in operating cash flow over this period
• For the same period, HRL generated nearly $755 Mil in net income, suggesting net margin of about 6.3%

This table highlights how HRL profitability vs broader market. For more details see: HRL Operating Income Comparison

[4] Financial Stability Looks Strong

• HRL Debt was $2.9 Bil at the end of the most recent quarter, while its current Market Cap is $14 Bil. This implies Debt-to-Equity Ratio of 20.5%
• HRL Cash (including cash equivalents) makes up $631 Mil of $13 Bil in total Assets. This yields a Cash-to-Assets Ratio of 4.7%

[4] Downturn Resilience Is Strong

HRL has been more resilient than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• HRL stock fell 44.4% from a high of $54.81 on 21 April 2022 to $30.47 on 29 November 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $36.77 on 20 May 2024 , and currently trades at $25.24

 
2020 Covid Pandemic

• HRL stock fell 17.5% from a high of $48.58 on 14 February 2020 to $40.08 on 12 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 15 April 2020

 
2008 Global Financial Crisis

• HRL stock fell 41.1% from a high of $10.62 on 7 April 2008 to $6.25 on 1 December 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 17 June 2010

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