Hormel Foods (HRL:NYS) Fundamental Valuation Report

Fundamental Valuation Report

Hormel Foods(HRL:NYS)

Consumer Defensive:Packaged Foods

This Report was generated using the valuation tools available on StockCalc.com. For a free 30 day trial click here.

Close Price/Date
$44.26 (USD) 10/12/2018

Weighted Valuation
$41.09 (USD)

Overall Rating
Overvalued by 7.2%

Valuation Models Analyst Consensus: $37.00 (USD)
(in order of importance) Discounted Cash Flow: $46.69 (USD)
Adjusted Book Value: $42.16 (USD)
Valuation Methods This company is:
Cash Flow: Undervalued on a Cash Flow Valuation
Comparable Company: Overvalued on a Comparable Valuation
Asset: Fairly valued on an Asset Valuation

Company Overview (HRL:NYS USD)

Price 44.26
Range 43.76 – 44.69
52 week 32.21 – 45.89
Open 44.50
Vol / Avg. 2.35M/3.68M
Mkt cap 23.66B
P/E 23.80
Div/yield 0.75/0.02
EPS 1.86
Shares 534.6M
Beta 0.13

Company Description

Hormel Foods Corp manufactures, sells, and distributes a variety of food products, primarily pork and turkey. In addition to commodity meat sales and meat products under its namesake brand (particularly bacon, pepperoni, and chili), Hormel owns the Spam, Jennie-O Turkey, Skippy, Muscle Milk, and Applegate labels. Sales of commodity products represent only about 20% of the portfolio, with the remainder from value-added offerings. The firm sells the vast majority of its products in the U.S. (94% in fiscal 2017). Over two thirds of Hormel’s fiscal 2017 sales came from perishable (54%) and poultry ( primarily turkey; 19%) items, with the remainder from shelf-stable products.

Valuation Details

 We have up to 6 valuation points for each company. Details are at the bottom of the report.

Discounted Cash Flow and Sensitivity Analysis for HRL:NYS

Using a discounted cash flow model we generated an intrinsic value of $46.69 (USD) for HRL:NYS

Sensitivity Analysis

(showing how changes in the input variables impact the DCF calculation)

HRL:NYS Current Values Valuation If Dropped * Valuation If Raised *
Calculated Value: $46.69 1% 5% 1% 5%
WACC (or Ke) 4.42 $60.66 $37.87
Terminal Growth Rate 0.00 $38.58 $59.53
Tax Rate 0.14 $49.47 $43.90
Cash Flow 1,502,495,746 $43.97 $49.41
Capital Expenditures -224,169,200 $46.32 $47.05
Long Term Debt 395,000,000 $46.72 $46.65

* Changes are absolute: ex WACC from 8% to 7%

Comparables Model

Using similar companies and price based ratios we generated a valuation of $30.63 (USD) for HRL:NYS. We also generated a valuation of $42.05 (USD) using other metrics and comparables.
The comparable companies were Conagra Brands (CAG:NYS), General Mills (GIS:NYS), Kraft Heinz (KHC:NAS) and McCormick & Co (MKC.V:NYS).

Company HRL:NYS End Date Value
Earnings/Share $1.86 (USD)
Book Value/Share $10.09 (USD)
Sales/Share $17.55 (USD)
Cash Flow/Share $2.25 (USD)
EBITDA/Share $2.52 (USD)
Price Based on Comps Adjustment Factor (%)
$26.38 (USD) -41.6
$39.26 (USD) -36.1
$40.57 (USD) 20.7
$49.29 (USD) -55.3
$41.55 (USD) 1.8
HRL:NYS Ratios Used Average Values CAG:NYS GIS:NYS KHC:NAS MKC.V:NYS
25.33 PE Ratio 14.18 15.85 11.75 6.05 23.07
4.47 PB Ratio 3.89 4.20 4.05 0.95 6.36
2.57 PS Ratio 2.31 1.63 1.55 2.38 3.68
20.00 PCF Ratio 22.37 14.21 8.73 44.47 22.08
17.93 EV to EBITDA 16.50 15.20 12.87 13.94 23.98

Multiples

Using a multiples approach we generated a valuation of  $39.86 (USD) for HRL:NYS

Company HRL:NYS End Date Value
Earnings/Share $1.86 (USD)
Book Value/Share $10.09 (USD)
Sales/Share $17.55 (USD)
Cash Flow/Share $2.25 (USD)
EBITDA/Share $2.52 (USD)
Price Based on Comps Adjustment Factor
$43.13 (USD) 0
$41.04 (USD) 0
$35.54 (USD) 0
$45.37 (USD) 0
$34.21 (USD) 0
Ratios Ratio Average
PE Ratio 23.19
PB Ratio 4.07
PS Ratio 2.02
PCF Ratio 20.12
EV to EBITDA 13.59

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  HRL:NYS for the last 10 years was  4.02

We ran the Adjusted Book Value for  HRL:NYS and generated a book value of  $10.49 (USD)
By multiplying these we get an adjusted valuation of  $42.16 (USD)

Analyst Data

In the Stockcalc database there are 2 analysts that provide a valuation for HRL:NYS. The 2 analysts have a concensus valuation for HRL:NYS for 2019 of $37.00 (USD).

HRL:NYS Hormel Foods

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
0 2 0 2.6667 Hold 2018-12-7

Current Price: 44.26 USD

Analyst Consensus
USD Millions 2019 2020 2021
Mean EPS 1.80 1.83 1.85
# EPS Analysts 3 2 1
Mean Revenue 9,793.00 9,883.80
# Revenue Analysts 3 2
Mean Target Price 37.00
Mean Cash Flow 2.23 2.17
Mean EBITDA 1,445.10 1,475.80
Mean Net Income 981.40 1,008.80
Mean Debt Outstanding 14.10 -410.00
Mean Tax Rate 21.00 21.00
Mean Growth Rate 6.31
Mean Capital Expenditure 313.60 200.00

Explanation of Valuation Models

We have up to 6 valuation points for each company in the database.

The Discounted Cash Flow (DCF) valuation is a cash flow model where cash flow projections are discounted back to the present to calculate value per share. DCF is a common valuation technique especially for companies undergoing irregular cash flows such as resource companies (mining, forestry, oil and gas) going though price cycles or smaller companies about to generate cash flow (junior exploration companies, junior pharma, technology firms…).

The Price Comparables valuation is the result of valuing the company we are looking at on the basis of ratios from selected comparable companies: Price to Earnings, Price to Book, Price to Sales, Price to Cash Flow, Enterprise Value (EV) to EBITDA. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

We have included the Other Comparables as a way to value companies that cannot be valued using Earnings based ratios. This technique is very useful for companies still experiencing negative cash flows such as mining exploration firms. We use Cash/Share, Book Value/Share, MarketCap, 1 Year Return, NetPPE as the ratios here. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

Multiples are similar to Price comparables where we look at current or historic ratios for the company in question to assess what it should be worth today based on those historic ratios. We use the same 5 ratios as in the price comparables and value the company with its historic averages.

With Adjusted Book Value (ABV) we calculate the book value per share for the company based on its balance sheet and multiply that book value per share by its historical price to book ratio to calculate a value per share.

If we have Analyst coverage for the company we use the consensus target price here.

Notice to User


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