When George Hormel established his Austin, Minnesota, market in 1891, he could not have imagined how the company would look today. More than 125 years later, Hormel Foods brands are staples on grocery shelves, and Hormel products are woven into the fabric of the nation’s food culture.
The 1926 invention of the world’s first ham in a can, simply branded Hormel Ham, was just the beginning. Between 1935 and 1941, Hormel developed a variety of popular products like Dinty Moore canned stew and Hormel canned chili.
The company’s most celebrated creation is Spam “SPiced hAM” canned pork. First, Spam provided tasty nutrition for WWII soldiers, and later, it became a non-perishable protein solution for food-challenged communities around the world. Today, Spam has what can only be described as a cult of followers, who proudly wear Spam-themed clothing.
Of course, the popularity of Spam-brand tinned ham notwithstanding, the question for investors is this: does Hormel [NYSE: HRL] have what it takes to sustain and increase profits in coming years?
Is Hormel Foods Stock a Buy?
Hormel Foods [NYSE: HRL] has a long history of financial success.
As a whole, the company has a strong reputation in an industry generally unaffected by market ups and downs, so it is well-positioned to weather economic storms.
Hormel [NYSE: HRL] has a firm hold on the number one and number two positions in more than 30 grocery categories, which represents approximately 10% of the 300 or so standard product groups. These range from Skippy brand peanut butter to the socially-conscious Applegate meats.
Business leaders have signaled their expectation that demand for Hormel Foods will increase by announcing a $150 million expansion of its Iowa-based production facility.
The expansion will add an additional 210,000 square feet to the current 225,000 square-foot facility, making room for at least 225 new workers. This is a promising sign for investors concerned with Hormel’s ability to compete in a changing marketplace.
Perhaps more importantly, Hormel [NYSE: HRL] is focused on expanding its international reach.
The company is already well-known and growing in China, and it is now making strategic acquisitions and reaching out to consumers in South America.
Both of these markets are critical to long-term business success in a variety of industries, as both represent a massive consumer population with growing spending power.
Despite the expense of expansion and acquisition, Hormel has succeeded in keeping its debt low. Debt makes up just 10% of the company’s capital structure which is pretty remarkable for a business in any industry.
Hormel’s dividend yield isn’t particularly high – more recently at 1.8%. However, investors appreciate Hormel’s reliable dividends, which have increased annually for 53 consecutive years.
What are the Risks of Buying Hormel Stock?
One of the biggest concerns investors have with organizations in the food industry is the narrow margin on most products.
Hormel is working towards a wider margin in some product lines by increasing focus on traditionally higher-margin categories.
For example, Applegate meats cater to the “socially-conscious carnivore” with a selection of items produced from animals who were raised humanely and given antibiotic- and hormone-free feed. Consumers have indicated a willingness to pay more for such products, creating more profit for Hormel.
Changing consumer tastes present a challenge for any business that deals in food.
In general, consumers are trending towards healthier alternatives to high-fat, high-sodium prepared foods. That presents an issue for Hormel, who relies on sale of processed meats like ham and pepperoni for a large percentage of sales.
Fortunately, Hormel isn’t afraid to change its approach, no matter how big the gap is between current offerings and most-requested features.
Hormel is meeting new consumer expectations through a two-pronged strategy.
First, the company is developing innovative new products to attract the interest of shoppers. Examples include convenient treats like peanut butter balls and pre-cooked bacon.
Some investors are concerned with the risk of buying shares in food industry companies because of the way this industry is consolidating.
Smaller brands enjoying any level of success are quickly snapped up by massive conglomerates. The likelihood of Hormel being acquired is negligible. A market cap of $23 billion creates a high hurdle for such a transaction.
More importantly, Hormel has taken specific action to prevent loss of independence through an unusual strategy. The non-profit Hormel Foundation owns 40% of Hormel stock, and the charity has a stated goal of preserving the organization’s independence.
Hormel Stock Forecast: Buy or Sell?
The bottom line is that experienced investors are big fans of Hormel. For many, these shares are an important part of their portfolio’s foundation.
The company offers reliable earnings year after year, and business leaders have demonstrated their ability to flex and adapt to changing consumer tastes.
Income investors are particularly likely to appreciate Hormel shares, because dividends have increased each year for more than half a century.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.