Hormel Foods (HRL) Downgraded to Sell on Turkey Market Woes

On May 29, Zacks Investment Research downgraded Hormel Foods CorporationHRL to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold), primarily due to the turkey market challenges being faced by the company, at present.

Going by the Zacks model, companies holding a Zacks Rank #4 have high chances of performing weaker than the broader market over the next quarters.

Over the last six months, Hormel Foods' shares lost 3.30%, as against 6.14% growth recorded by the Zacks categorized Food - Meat Products industry.

Why the Downside?

Hormel Foods' Jennie-O Turkey Store business segment's performance has been weakening due to decline in turkey prices, extensive competition and increase in overall operating expenses. The company noted that the turkey prices (especially turkey breast meat) had hit a seven-year low in first-quarter fiscal 2017, while prices of few products weakened even further during second-quarter fiscal 2017. The turkey market has been facing an oversupply situation and is unlikely to witness any price hike in the upcoming quarters.

On the other hand, operating cost of the Jennie-O Turkey Store segment has been escalating due to poor yield from plant operations and maintenance activities required for certain bio-security measures. In addition, cut-throat competition is triggering price pressure in the segments' food service, retail and daily business chains. Hormel Foods expects these headwinds to depress its overall fiscal 2017 earnings result. The company currently predicts to report earnings at the lower end of the 1.65-$1.71 per share range for fiscal 2017.

Notably, other headwinds such as a stronger U.S. dollar, input price inflation or outbreak of any livestock disease might weigh over near-term results.

Over the last 60 days, the Zacks Consensus Estimate for the stock has moved south for both fiscal 2017 and 2018, reflecting negative market sentiments.

Stocks to Consider

Some better-ranked stocks within the industry are listed below:

Ollie's Bargain Outlet Holdings, Inc. OLLI delivered an average earnings surprise of 16.80% for the trailing four quarters and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Aramark Holdings Corp ARMK , which carries a Zacks Rank #2 (Buy) at present, pulled off an average positive earnings surprise of 4.45% over the last four quarters.

Energizer Holdings, Inc. ENR also carries a Zacks Rank #2 and generated an average earnings surprise of 21.55% over the past four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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