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Assessing Hormel Foods from a Valuation Perspective

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Apr. 13 2018, Updated 7:30 a.m. ET

Forward PE

On April 6, 2018, Hormel Foods (HRL) was trading at a 12-month forward PE (price-to-earnings ratio) of 18.6x. Following its fiscal 1Q18 results, the company’s valuation multiple has hardly changed.

However, the company is trading at a higher valuation multiple compared to its peers. Tyson Foods (TSN) is trading at a 12-month forward PE of 10.3x, while Pilgrim’s Pride (PPC), the Campbell Soup Company (CPB), and Conagra Brands (CAG) are trading at PEs of 7.8x, 13.5x, and 16.1x, respectively, as of April 6, 2018.

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Analysts’ growth estimates

Analysts expect Hormel Foods’ fiscal 2018 sales to be $9.8 billion, up 6.7%, while the company’s EPS (earnings per share) are expected to rise 17.2% to $1.84 on an adjusted basis.

Peer comparison

Analysts expect Tyson Foods’ fiscal 2018 sales to rise 7% to $40.9 billion and its adjusted EPS to rise 24.7% to $6.62.

Analysts expect Pilgrim’s Pride’s fiscal 2018 sales to rise 2.7% to $11.1 billion and its adjusted EPS to rise 5.2% to $3.04.

Analysts expect Campbell Soup’s fiscal 2018 sales to rise 11% to $8.8 billion and its EPS to rise 3.3% to $3.14. For fiscal 2019, analysts expect its sales to rise 18.5% to $10.4 billion and its adjusted EPS to rise 4.5% to $3.28.

Analysts expect Conagra’s fiscal 2018 sales to rise 0.9% to $7.9 billion and its EPS to rise 17.8% to $2.05. For fiscal 2019, analysts expect its sales to rise 1.2% to $8 billion and its adjusted EPS to rise 13% to $2.32.

Analysts’ projections are more bullish for Campbell Soup compared to the other retailers under review. The company has reported better-than-expected fiscal 2Q18 results. Going forward, the company’s bottom line should benefit from aggressive cost management and tax reforms. Its top line should gain from innovation and product launches. 

Despite these contributors, industry-wide challenges continue to be a drag. Higher input and logistics costs and shifts to healthier foods are expected to mar sales numbers for all retailers.

In the next article, we’ll discuss what analysts have to say about Hormel Foods stock.

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