We are maintaining our Neutral recommendation on
Hormel Foods Corporation
) over the long term.
We are optimistic on the company's strong fiscal third quarter
2012, which saw positive sales momentum. Hormel's Grocery Products
and Jennie-O Turkey Store witnessed improvement. Moreover, the
increasing share of value-added branded products in Hormel's
product-mix strengthens our view on the stock.
Hormel's balance sheet historically provides high returns, thus
positioning it above other industry players like
ConAgra Foods Inc.
Kraft Foods Inc.
Tyson Foods Inc.
). The company is financially well positioned to pursue more
strategic acquisitions, which are anticipated to strengthen its
growth profile in the future. The company's dividend
declarationupholds its commitment toward returning value to its
Hormel has a proven track record of successful acquisitions and
integration of businesses over the years. Hormel's retail business
and branded stores continue to benefit from its investment on new
advertising campaigns. Thus, such successful brand building and
subsequent sales growth hold significant growth potential for the
However, our outlook is not completely free from risks. Hormel
faces stiff competition from national and regional producers of
other meat and protein sources as well as from the manufacturers of
pork and turkey products. Also, competition in the Grocery Products
segment continues to remain a drag on profits.
Hormel's operations and financial results are largely dependent
on the cost and supply of raw material. As a result, constantly
changing market forces of supply and demand remain nagging
concerns. Moreover, a significant jump in pork cold storage
charges, continue to impact pricing of processed meats.
Hormel's strategy to grow through acquisitions, though
promising, imposes several potential risks for the company. The
cost of acquisition could impact its financial results. The risks
associated with foreign operations such as government regulations,
currency fluctuation cannot be overlooked.
Based in Austin, Minnesota, Hormel Foods Corporation is a
leading manufacturer and marketer of various meat and food products
in the United States and internationally. Hormel has a Zacks #3
Rank, which translates into a short-term (1-3 months) 'Hold'
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