May 27, 2013

Wall Street analysts are optimistic about Hormel Foods's growth plan, with its focus on longer-term growth potential and the will to overlook a decline in second-quarter profit.

Hormel's plans to drive growth include expanding value-added offerings, reviving underperforming brands such as Compleats and developing new products such as Rev Wraps that are logical extensions of core products, BMO Capital Markets analyst Kenneth Zaslow said in a report. The company is also improving the profitability of its international operations and making acquisitions to boost earnings, he noted.

The company recently reported a 2% drop in quarterly net profit, weighed down by weak Jennie-O results and acquisition charges.

Zaslow raised his forecast for Hormel's fiscal 2014 earnings to US$2.28 a share, up from his previous estimate of US$2.19 a share. However, he maintained a "market perform" rating on the stock because of its already healthy market valuation.

Value-added products in the refrigerated foods division, including Hormel party trays, Hormel convenience bacon, Lloyd's, Hormel Fire Braised Meats, Hormel Pecanwood bacon and tray pack and turkey bacon items, continue to generate strong results, Zaslow noted.

In the turkey business, prices should begin to benefit as industry production likely will decline by 2% to 5%, Zaslow said.

Stephens analyst Farha Aslam maintained an "outperform" rating on Hormel. "The company is very well positioned in the defensive food sector with a strong portfolio of household brands, a history of consistent earnings growth, strong cash flow, and a conservative balance sheet. The stock has a dividend yield of 1.6% and has a 47-year record of consecutive dividend increases," she wrote in a note.