Hormel Touches a New 52-Week High - Analyst Blog

Shares of Hormel Corporation HRL, a meat products company, scaled a new 52-week high of $49.56 during its trading session on Jun 3. This marks a nominal increase from the previous high of $49.37 hit a day ago.

Hormel closed the session at $49.49, reflecting a solid return of 26.5% in the past one year. The trading volume for the session was 957K shares. An expected earnings growth rate of 8.0% over the next five years indicates further upside potential for the company.

Growth Drivers

Hormel posted improved year-over-year results for the second quarter of fiscal 2014 (ended Apr 27, 2014). Earnings came in at 52 cents per share, up nearly 13% from the year-ago quarter. Share prices rose roughly 2.0% after the results were announced before the opening bell on May 21.

In the reported quarter, revenues grew around 4% year over year to $2.2 billion driven by increased contribution from acquisitions. The Skippy acquisition made in Jan 2013 continues to be accretive for the company. The business is expected to grow further in the coming quarters, thus improving revenues and margins. Moreover, Hormel's spend on advertising is expected to create an awareness about its products and in turn, lead to increased sales.

Hormel is optimistic about results in the quarters ahead, based on its organic as well as inorganic growth. The company is also expected to launch products in the near term to gain a higher market share. However, increased cost of raw materials might drag earnings per share toward the lower end of the $2.17–$2.27 range, as guided by the management.

The impressive quarter results project an encouraging future outlook for the company. The Zacks Consensus Estimate for Hormel is pegged at $2.18 for fiscal 2014 and at $2.47 for fiscal 2015, reflecting year-over-year growth rates of 11.8% and 13.5%, respectively.

Other Stocks to Consider

With a Zacks Rank #4 (Sell), Hormel currently has a market capitalization of $13.1 billion. Some better-ranked stocks in the industry include Pilgrim's Pride Corporation PPC, Sanderson Farms, Inc. SAFM and JBS S.A. (JBSAY). While Pilgrim's Pride and Sanderson Farms sport a Zacks Rank #1 (Strong Buy), JBS carries a Zacks Rank #2 (Buy).

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