Neutral on Hormel Foods - Analyst Blog
June 11 2012 - 8:30AM
Zacks
We are maintaining a Neutral view
on Hormel Foods Corporation (HRL).
We are optimistic on the company’s
continuously improving operational efficiencies and pricing
strategy. Hormel’s strategic brand building and marketing schemes
have also been improving market share, while positioning it above
its peers within the industry.
Hormel witnessed significant
improvement across its segments’ positive sales momentum and rise
in earnings per share during the second quarter of 2012. The supply
chain efficiencies were also notable.
The company’s balance sheet holds a
track record of high return and its favorable cash position allows
the company to pursue suitable acquisitions/integrationsand brand
building. Moreover, Hormel’s quarterly dividend declarationupholds
its commitment toward returning value to its shareholders.
However, Hormel resorts to
international brand acquisitions and exports as its strategy for
growth. Therefore, the company is exposed to the risks of
international operations including government intervention
political issues, regulatory delays and fluctuating foreign
exchange rates, which may disrupt operations and affect its
profitability going forward.
Hormel’s operations over time have
largely been affected by a rise in raw material cost of pork,
poultry and feed grains. Rising cold storage charges continue to
squeeze operating profits for the company as well.
The company faces stiff competition
from its peers, such as ConAgra Foods Inc. (CAG),
Kraft Foods Inc. (KFT) and Tyson Foods
Inc. (TSN). The low-cost, regional manufacturers of
processed food intensify competition. However, a positive export
environment and an upside in packaged food prices hold optimism for
driving the company’s revenue gain, for quarters ahead.
Hormel has a Zacks #2 Rank, which
translates into a short-term (1-3 months) ‘Buy’ rating.
CONAGRA FOODS (CAG): Free Stock Analysis Report
HORMEL FOODS CP (HRL): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
TYSON FOODS A (TSN): Free Stock Analysis Report
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