Hormel Rockets Higher On Record Results
The institutions have been buying Hormel (NYSE: HRL) and we are not surprised by the news. The institutions have been shifting their attention to blue chips and dividends including Consumer Staples and we see that trend continuing for the foreseeable future. In the case of Hormel, internal improvements, consumer tailwinds, and pricing efforts have driven the company to record results and have the dividend positioned for sustained annual increases. Trading at 25X its earnings and yielding 2.2%, it is not our favorite in the Consumer Staples group but it is still one attractive investment and one whose share prices we see trending higher this year.
Institutional support will play a role in the Hormel rally. The institutions purchased a net 2.8% of the market cap over the past year with half of that activity in the Q1 period of 2022 alone. This has institutional ownership up to only 41% so there are still plenty of shares floating around for them to pick up. The analysts also have ample ammunition in their arsenal of bullish catalysts as well.
The current consensus, of 5 analysts, is a firm Hold which means there is not only room for the consensus rating to move higher but plenty of analysts sitting on the fence to add their voice and following to the fray. More importantly, the consensus price target and the high price target are both lagging price action. The consensus of $45.25 las by 8.5% while the freshly set high price target of $49 assumes the stock is fairly valued. The takeaway, we are expecting to see new analysts' ratings, upgrades, and price target increases for Hormel stock over the next 12 months.
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Hormel Has Record Quarter, Reiterates Guidance
Hormel did not just have a record quarter but the 5th consecutive record quarter and we don’t see that trend ending. The company reports solid demand across all end markets with strength in key growth areas including the recently acquired Planters Nuts business. The revenue of $3.04 grew 23.6% over last year and beat the consensus by 410 basis points on the combination of organic and acquisitional strength. On an organic basis, sales are up 13% on a 4% decline in volume offset by robust pricing increases. Total volume is up 1.2%.
Moving down to the margin, the company’s operating margin contracted by 40 basis points which are slightly more than expected but offset by the guidance. On the bottom line, the GAAP EPS of $0.44 is up 7% from last year and is in line with the consensus target. As for the guidance, the company reiterated its previously stated guidance for the year which calls for revenue and earnings to bracket the current consensus and leaves ample room for upside performance.
"We are reaffirming our sales and earnings guidance," said Jim Snee, CEO of Hormel. "We expect the demand environment to remain favorable (and) pricing actions to combat inflationary pressures … Additionally, we anticipate the operating environment to remain volatile, but our supply chain will continue to show improvement as labor pressures ease and new capacity comes online to support key growth platforms.”
The Technical Outlook: Hormel Confirms Short And Long-Term Trends
Shares of Hormel recently corrected back to the long-term trend line and have since confirmed that trend. Now, in the wake of the Q1 earnings report, the price action is confirming the near-term trend as well with a move up to a key resistance point. If resistance at the $50.80 level can be broken we see the stock moving up to retest the all-time highs at $53 and then possibly move up to set new highs along with the rest of the Consumer Staples group.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Hormel Foods (HRL) | $31.68 | +0.3% | 3.66% | 21.70 | Reduce | $31.29 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
