On Tuesday, Citi upgraded Hormel Foods Corporation (NYSE:HRL), shifting its stock rating from Neutral to Buy and increasing the price target to $37.00, up from the previous $33.00.
The firm anticipates potential for modest earnings per share (EPS) growth in the third quarter of 2024 (3Q24) and the full year (FY24), with further gains expected in FY25 and FY26.
The analyst noted improvements in underlying retail sales trends for Hormel Foods, despite challenges arising from temporary halts in the production of Planters™ products.
The cost environment for inputs, particularly feed, is becoming more favorable, which could contribute to the company's performance. Additionally, a decline in turkey industry production is expected to lead to higher prices, potentially benefiting Hormel.
Citi's positive outlook on Hormel Foods is contrasted by a generally negative sentiment among sell-side analysts, with Citi's Buy rating standing out as the sole endorsement of this nature.
Moreover, current consensus estimates, according to data from Visible Alpha, seem to discount the possibility of Hormel achieving its targeted $250 million operating profit improvement by FY26.
The firm also highlighted that Hormel Foods' shares are trading at a premium compared to most food industry stocks. However, when considering historical price-to-earnings (P/E) and enterprise value-to-EBITDA (EV/EBITDA) multiples, Hormel is trading at a wider discount relative to its historical averages and those of its peers in the food sector. This valuation gap further supports Citi's upgraded stance on the company.
InvestingPro Insights
Citi's upgrade of Hormel Foods Corporation (NYSE:HRL) to a Buy rating and its increased price target is bolstered by several key metrics and InvestingPro Tips that suggest potential for the company's stock performance. Hormel's long-standing history of raising dividends, with 54 consecutive years of maintained dividend payments, indicates a strong commitment to shareholder returns. This is reinforced by the fact that Hormel's cash flows can sufficiently cover interest payments, showcasing financial stability.
InvestingPro Data highlights Hormel's market capitalization of $17.13 billion and a P/E ratio of 22.43, which adjusts to 20.98 for the last twelve months as of Q2 2024. Despite a slight revenue decline of 1.8% in the same period, the company's gross profit margin stands at 16.84%, demonstrating the company's ability to maintain profitability. Furthermore, Hormel's dividend yield is currently at 3.62%, which is attractive to investors seeking income, especially in a market where yields are fluctuating.
InvestingPro Tips also reveal that while analysts have revised their earnings downwards for the upcoming period, the company is still expected to be profitable this year and has been profitable over the last twelve months. Additionally, Hormel's liquid assets exceed short-term obligations, and the company operates with a moderate level of debt, which are positive indicators of financial health.
For readers looking for more in-depth analysis and additional insights, there are more InvestingPro Tips available at https://www.investing.com/pro/HRL, which could help in making informed investment decisions regarding Hormel Foods Corporation.
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