Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Hormel Foods Corp (HRL) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Hormel Foods Corporation is engaged in the production of a range of meat and food products. The Company operates through five segments: Grocery Products, which is engaged in the processing, marketing and sale of shelf-stable food products sold for the retail market; Refrigerated Foods, which consists of the processing, marketing and sale of branded and unbranded pork, beef, chicken and turkey products for retail, foodservice and fresh product customers; Jennie-O Turkey Store (JOTS), which consists of the processing, marketing and sale of branded and unbranded turkey products for retail, foodservice and fresh product customers; Specialty Foods, which consists of the packaging and sale of nutritional and private label shelf-stable products to industrial, retail and foodservice customers, and International & Other, which includes Hormel Foods International Corporation, which manufactures, markets and sells the Company products internationally.
[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.
[otw_shortcode_button href=”https://www.moderngraham.com/moderngraham-stocks-screens/” size=”medium” icon_position=”left” shape=”square”]Learn More About Premium Membership[/otw_shortcode_button]
[/level-free]
[not-level-free]
Downloadable PDF version of this valuation:
ModernGraham Valuation of HRL – March 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $18,223,084,174 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.30 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 142.17% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 23.81 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 4.09 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 2.30 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.21 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $1.46 |
| MG Growth Estimate | 9.63% |
| MG Value | $40.41 |
| Opinion | Fairly Valued |
| MG Grade | B |
| MG Value based on 3% Growth | $21.11 |
| MG Value based on 0% Growth | $12.37 |
| Market Implied Growth Rate | 7.66% |
| Current Price | $34.66 |
| % of Intrinsic Value | 85.77% |
Hormel Foods Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.89 in 2013 to an estimated $1.46 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 7.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Hormel Foods Corp revealed the company was trading above its Graham Number of $17.73. The company pays a dividend of $0.61 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 23.8, which was below the industry average of 24.74, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.61.
Hormel Foods Corp performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $0.61 |
| Graham Number | $17.73 |
| PEmg | 23.80 |
| Current Ratio | 2.30 |
| PB Ratio | 4.09 |
| Current Dividend | $0.61 |
| Dividend Yield | 1.75% |
| Number of Consecutive Years of Dividend Growth | 20 |
[/not-level-free]
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 1/1/2017 |
| Total Current Assets | $2,119,586,000 |
| Total Current Liabilities | $919,762,000 |
| Long-Term Debt | $250,000,000 |
| Total Assets | $6,366,398,000 |
| Intangible Assets | $2,709,468,000 |
| Total Liabilities | $1,791,101,000 |
| Shares Outstanding (Diluted Average) | 540,064,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $1.65 |
| Oct2016 | $1.64 |
| Oct2015 | $1.27 |
| Oct2014 | $1.12 |
| Oct2013 | $0.98 |
| Oct2012 | $0.93 |
| Oct2011 | $0.87 |
| Oct2010 | $0.73 |
| Oct2009 | $0.63 |
| Oct2008 | $0.52 |
| Oct2007 | $0.54 |
| Oct2006 | $0.51 |
| Oct2005 | $0.46 |
| Oct2004 | $0.42 |
| Oct2003 | $0.33 |
| Oct2002 | $0.34 |
| Oct2001 | $0.33 |
| Oct2000 | $0.30 |
| Oct1999 | $0.28 |
| Oct1998 | $0.23 |
| Oct1997 | $0.18 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $1.46 |
| Oct2016 | $1.30 |
| Oct2015 | $1.10 |
| Oct2014 | $0.98 |
| Oct2013 | $0.89 |
| Oct2012 | $0.81 |
| Oct2011 | $0.72 |
| Oct2010 | $0.62 |
| Oct2009 | $0.56 |
| Oct2008 | $0.51 |
| Oct2007 | $0.49 |
| Oct2006 | $0.44 |
| Oct2005 | $0.40 |
| Oct2004 | $0.36 |
| Oct2003 | $0.32 |
| Oct2002 | $0.31 |
| Oct2001 | $0.29 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
Leave a Reply