Linked here is a detailed quantitative analysis by Hormel Foods Corp. (HRL). Below are some highlights from the analysis linked above:
Company description: Hormel Foods Corp. is a multinational manufacturer and marketer of food and meat products with consumer brands.
Fair value: When calculating the fair value, I consider the NPV MMA Differential Fair Value along with these four fair value calculations, see page 2 of the linked PDF for a detailed description:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham number
HRL trades at a premium to all four of the above ratings. When the NPV-MMA differential is also factored in, the stock trades at a premium of 45.0% to its calculated fair value of $ 32.93. HRL did not deserve any stars in this section.
Analytical data on dividends: There are three possible stars and three key metrics in this section, a detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4-year div. > 15%
HRL has earned a star for 2.) above in this section. The stock earned a star because its recent debt to total capital was less than 45%. The company has paid a cash dividend to shareholders every year since 1928 and has increased its dividend payments for 55 consecutive years.
Dividend Income vs. MMA: Why take the equity risk and invest in a dividend stock when you could get a better return with a much lower risk money market account (MMA) or a government bond? This section compares the earning power of this stock to a High yield MMA. In this section two points are considered, a detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. Years to> MMA
The NPV MMA Diff. the $ 152 is below the $ 500 target I’m looking for in a stock that has hiked dividends for as long as HRL. If HRL increases its dividend by 5.2% per year, it will take 7 years to reach an MMA with an estimated 20-year average rate of 2.74%.
Peers: The company’s peer group includes: Cal-Maine Foods, Inc. (CALM) with a yield of 0.1%, Mondelez International, Inc. (MDLZ) with 2.0% yield and ConAgra Foods, Inc. (CAG) with a yield of 3.1%.
Conclusion: HRL received no stars in the “Fair Value” area, one star in the “Dividend Analysis Data” area and no stars in the “Dividend Income vs. MMA” area, so one star overall. HRL quantitatively classifies this as a. a 1 star very weak Warehouse.
Using my D4L-PreScreen.xls Model, I found that the stock price would have to drop to $ 35.47 before HRL’s NPV-MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 55 years of consecutive dividend increases. At that price, the stock would return 2.8%.
Resetting the D4L-PreScreen.xls The model and solution for the dividend growth rate required to achieve the target NPV MMA differential of $ 500, the calculated rate is 8.9%. This dividend growth rate is above the 5.2% used in this analysis and thus does not offer any margin of safety. HRL has one Risk rating of 1.75, which rates it as a medium risk stock.
HRL brands include Hormel, Spam, Jennie-O, Country Crock, Lloyd’s, and Chi-Chi’s. In addition, with the acquisition of the Skippy brand from Unilever, HRL has expanded into a non-meat category. The company has defined a niche where it converts bulk meat into packaged value-added products. This has allowed the company to achieve superior results compared to other meat processors.
The company has a relatively strong balance sheet with minimal debt and generates strong cash flows (even during the recession). Like most companies in the industry, the company is very sensitive to changes in raw material costs. The company should have above average long-term growth and stable earnings and dividends, with HRL sales outside the US playing a more prominent role. The stock is currently trading at a premium of 45.0% to my calculated fair value of $ 32.93. Additionally, the dividend yield is below my desired minimum, so I will continue to watch this stock from the sideline.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. This is generally never true. Before buying or selling stocks you you should do your own research and come to your own conclusions. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not hold a position in HRL (0.0% of my dividend growth portfolio).
On the subject of matching items
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Tags: HRL, CALM, MDLZ, CAG,