Fundamental analysis of Hormel Foods Corp. (ticker: HRL), May 26, 2017

Update August 7, 2017

Hormel Foods is still expensive at 20.5 times trailing earnings. If we assume that the company will earn $1.60 this year the P/E multiple come in at a similar 21.0. The P/E over the average past three years is 25.1.

Because the company has a lot of intangible assets (these are to be subtracted from the equity to arrive at the book value) the Book value is negative.

The company has a working capital of $975 million which puts them in a good position.

The Free Cash Flow is $740 million which amounts to $1.36 per share. Of this they pay a dividend of $0.68 this year.

Conclusion:

While the company is still a little bit too expensive for my taste, it has got an interesting balance sheet.

Another good thing about the company is that it has solid earnings and a steady cash flow.

Hormel Foods has been paying out uninterrupted and increasing dividends for more than 25 years.

At these prices I would give it a HOLD.

Description:

Hormel Foods produces and commercializes various meat and food products. It is based in Austin, Minnesota.

Valuation:

The company is expensive at a trailing P/E of 21.5 and considering an average of the past three years’ earnings it looks even worse at 26.3. The Book value is negative due to the high Goodwill component of the Balance sheet which consequently gives a negative Price to Book value.

Balance sheet:

The Current assets to Current liabilities ratio looks good at 1.9 with a Net working capital of $975 million. The biggest problem for Hormel is its debt where the Debt to equity ratio is very high at 5.0.

Cash flow and dividend:

The Free cash flow last year came in at $735 million which equates to $1.36 per share. The Free cash flow allows the company to pay out a dividend 58 cents (1.7%). The dividend has been uninterrupted and increasing for more than 25 years which makes the part of the Dividend aristocrats.

Summary:

Hormel would be a good investment if it was about half the price, but now it is too expensive for me. I would not buy new stock at this point, but if you already own it by all means : HOLD.

 If you would like to learn more about fundamental analysis you can do that here.

The post Hormel Foods appeared first on LJ Nissen's blog.