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Credit Agricole Downgrades Hormel Foods to ‘Underperform’

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Price movement of Hormel Foods

Hormel Foods (HRL) has a market cap of $22.7 billion. HRL fell by 3.6% to close at $42.89 per share as of February 18, 2016. The price movement on a weekly, monthly, and year-to-date (or YTD) basis is 2.9%, 11.6%, and 8.9%, respectively.

At times, the stock has broken its 20-day and 50-day moving averages. Currently, HRL is trading 6.8% above its 20-day moving average, 8.4% above its 50-day moving average, and 31.0% above its 200-day moving average.

The PowerShares Dynamic Large Cap Growth Portfolio ETF (PWB) invests 1.6% of its holdings in Hormel Foods. The ETF tracks an index that uses a multifactor selection methodology to select 50 large-cap stocks with growth characteristics. The YTD price movement of PWB is -6.8% as of February 17, 2016.

The PowerShares DWA Momentum ETF (PDP) invests 1.1% of its holdings in Hormel Foods. The ETF tracks an index of 100 US-listed large-cap and midcap companies that are selected and weighted by relative stock performance.

The market cap of Hormel Foods’ competitors are as follows:

  • Tyson Foods (TSN) — $22.9 billion
  • ConAgra Foods (CAG) — $18.1 billion
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Credit Agricole downgraded Hormel Foods

Credit Agricole has downgraded Hormel Foods’ (HRL) rating from “outperform” to “underperform.”

On February 17, 2016, Jefferies also downgraded Hormel Foods from “buy” to “hold” and set the price target to $43 from $42.50 per share.

Performance of Hormel Foods in fiscal 1Q16

Hormel Foods reported fiscal 1Q16 net sales of $2,292.7 million, a fall of 4.3% compared to net sales of $2,395.1 million in fiscal 1Q15. Sales of grocery products, Jennie-O Turkey store, specialty foods, and international and other segments fell by 4.3%, 15.4%, 9.7%, and 6.8%, respectively, and sales of refrigerated foods rose by 1.6% in fiscal 1Q16 compared to fiscal 1Q15.

Hormel Foods’ cost of products sold as a percentage of net sales fell by 6.2%, and its operating income rose by 35.2% in fiscal 1Q16 compared to fiscal 1Q15. It reported equity in earnings of affiliates of $11.5 million in fiscal 1Q16, compared to $1.7 million in fiscal 1Q15.

Its net income and EPS (earnings per share) rose to $235.1 million and $0.43, respectively, in fiscal 1Q16, compared to $171.7 million and $0.32, respectively, in fiscal 1Q15.

Meanwhile, its cash and cash equivalents and inventories rose by 8.1% and 0.15%, respectively, in fiscal 1Q16 compared to fiscal 4Q15. Its current ratio rose to 1.9x in fiscal 1Q16 compared to 1.7x in fiscal 4Q15.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of Hormel Foods were 33.8x and 5.7x, respectively, as of February 18, 2016.

Hormel Foods has declared a quarterly dividend of $0.145 per share. The company has projected the EPS in the range of $1.50–$1.56 per share for fiscal 2016.

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