Yahoo Finance Hormel Foods Stock Appears To Be Fairly Valued
- By GF Value
The stock of Hormel Foods (NYSE:HRL, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $46.79 per share and the market cap of $25.4 billion, Hormel Foods stock is estimated to be fairly valued. GF Value for Hormel Foods is shown in the chart below.
Because Hormel Foods is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.1% over the past three years and is estimated to grow 2.20% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Hormel Foods has a cash-to-debt ratio of 1.36, which is in the middle range of the companies in the industry of Consumer Packaged Goods. GuruFocus ranks the overall financial strength of Hormel Foods at 7 out of 10, which indicates that the financial strength of Hormel Foods is fair. This is the debt and cash of Hormel Foods over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Hormel Foods has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $9.7 billion and earnings of $1.63 a share. Its operating margin is 10.80%, which ranks better than 72% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Hormel Foods is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Hormel Foods over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Hormel Foods is 1.1%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth is -2.4%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Hormel Foods's ROIC is 12.02 while its WACC came in at 1.38. The historical ROIC vs WACC comparison of Hormel Foods is shown below:
In closing, the stock of Hormel Foods (NYSE:HRL, 30-year Financials) appears to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about Hormel Foods stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
