Barclays Downgrades Hormel Foods After Undercooked Q3

Hormel Foods Corp HRL reported lower-than-expected third-quarter sales Thursday.

The Analyst

Barclays' Benjamin Theurer downgraded Hormel Foods Corp. from Overweight to Equal Weight and left the price target unchanged at $38.

The Thesis

The downgrade comes due to weaker-than-expected earnings results and a more cautious view of the company, Theurer said in a note. (See the analyst's track record here.) 

Hormel cut 2018 sales guidance from a range of $9.7-$10.1 billion to $9.4-$9.6 billion.

The analyst said he has a more neutral view on the food stock for the following reasons: 

• An imbalance of the supply and demand of the pork business. 
• Uncertainty in the international segment due to trade tariffs and consequent volatility. 
• Continued sluggish performance from the Jennie-O Turkey Store and other businesses.
• At 20 times F2018 P/E, Theurer said Hormel's valuation is less attractive than that of peers, with little room for upside. 

Most of Hormel's headwinds are expected to continue, Theurer said, adding that he remains cautious on the JOTS business in 2018 and the first half of 2019. 

Hormel's ability to partially offset pressure from the commoditized segment is a positive in its earnings report, the analyst said. 

The Price Action

Hormel shares were trading up 1.3 percent to $37.83 at the time of publication Friday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For August 24, 2018

Mid-Morning Market Update: Markets Edge Higher; Hormel Foods Sales Miss Views

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