HRL
HRL
Hormel Foods Corporation, founded in 1891 in Austin, Minnesota, is one of the most recognized consumer branded food companies in the United States. Known for SPAM, Skippy, Planters, Jennie-O, Applegate, and Wholly Guacamole, Hormel operates across three reportable segments. The company is a Dividend King with 60 consecutive years of dividend increases — one of only ~50 companies globally with this distinction.
FY2025 was a transition year marked by a $214M non-cash goodwill impairment (Planters, CytoSport), margin compression from elevated input costs (hog, turkey), and soft turkey volumes. GAAP EPS fell to $0.87 from $1.47 in FY2024 — but normalized EPS (ex-impairment) was ~$1.26. Management is executing a "Transform and Modernize" initiative targeting $250M in cost savings through FY2026. The stock trades at a 15-year valuation low, with the dividend yield at 5.4% — more than double its 5-year average of ~2.2%.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Retail | $7,370M | 61% | -2.0% | 4.0% | SPAM, Skippy, Planters, Applegate — under pressure |
| Foodservice | $3,850M | 32% | +3.5% | 10.0% | Branded bacon, pepperoni, Jennie-O — strongest performer |
| International | $702M | 6% | +1.2% | 5.0% | China (SPAM), export markets |
| Blended Growth Rate | — | 100% | -0.0% | — | Weighted avg across segments |
Startup
Hyper Growth
Self Funding
Operating Leverage
Capital Return
Decline
Stage 5 — Capital Return — Dividend King, Recovery Play: Mature business returning capital via dividends and buybacks. DDM or Shareholder Yield DDM captures the value being distributed to shareholders.
Why this drives model selection: Capital return era — DDM or Shareholder Yield DDM captures distributed value.
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 4.5% | <8% weak |
| FCF Margin | 4.4% | <5% weak |
| Debt / EBITDA | 3.5x | 2–4x moderate |
| Revenue Trend | Mixed | 3-year directional trend |
| FCF Margin Trend | Contracting | Directional margin trajectory |
| Analyst Revisions | Downward revisions | Last 90 days consensus direction |
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $11,386 | $12,459 | $12,110 | $11,921 | $12,106 |
| Rev YoY Growth | — | +9.4% | -2.8% | -1.6% | +1.6% |
| Gross Margin | 16.9% | 17.4% | 16.5% | 17.0% | 15.6% |
| EBITDA ($M) | $1,332 | $1,548 | $1,325 | $1,326 | $983 |
| EBITDA Margin | 11.7% | 12.4% | 10.9% | 11.1% | 8.1% |
| Operating Income ($M) | $1,123 | $1,313 | $1,072 | $1,068 | $719 |
| Operating Margin | 9.9% | 10.5% | 8.9% | 9.0% | 5.9% |
| Net Income ($M) | $909 | $1,000 | $794 | $805 | $478 |
| Net Margin | 8.0% | 8.0% | 6.6% | 6.8% | 3.9% |
| EPS (diluted) | $1.66 | $1.82 | $1.45 | $1.47 | $0.87 |
| Free Cash Flow ($M) | $770 | $856 | $778 | $1,010 | $534 |
| Annual DPS | $0.980 | $1.040 | $1.100 | $1.130 | $1.163 |
| Total Debt ($M) | $3,324 | $3,299 | $3,309 | $2,859 | $2,857 |
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2021 | 548.0M | — | — | — |
| 2022 | 550.0M | +0.4% | — | — |
| 2023 | 549.0M | -0.2% | — | — |
| 2024 | 548.0M | -0.2% | — | — |
| 2025 | 550.0M | +0.4% | — | — |
Share count has been essentially flat over 5 years (~548–550M). HRL does not run a systematic buyback program — minimal buyback yield of −0.25% (net dilution from equity compensation). This is a dividend-first company; capital return is overwhelmingly via the dividend (60 consecutive years of increases).
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.30% | 10-yr US Treasury yield |
| Beta (β) | 0.550 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 7.33% | Ke = Rf + β × ERP |
| Pre-Tax Cost of Debt | 3.56% | Interest exp / gross debt |
| After-Tax Cost of Debt (Kd) | 2.78% | × (1 − 22%) |
| Weight Equity (We) | 80.6% | Mkt cap $0.0B |
| Weight Debt (Wd) | 19.4% | Gross debt $0.0B |
| WACC | 6.49% | DCF discount rate |
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 1.0% | 1.0% | 2.0% | 7.49% | $11 | ▼49.8% |
| 📊 Base | 4.0% | 2.5% | 2.5% | 6.49% | $21 | ▼1.1% |
| 🚀 Bull | 7.0% | 4.0% | 3.0% | 5.99% | $43 | ▲98.6% |
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.50B | $0.47B | $0.47B |
| Year 2 ✦ | Stage 1 | $0.51B | $0.44B | $0.90B |
| Year 3 ✦ | Stage 1 | $0.51B | $0.41B | $1.31B |
| Year 4 ✦ | Stage 1 | $0.52B | $0.39B | $1.70B |
| Year 5 ✦ | Stage 1 | $0.52B | $0.36B | $2.06B |
| Year 6 | Stage 2 | $0.53B | $0.34B | $2.40B |
| Year 7 | Stage 2 | $0.53B | $0.32B | $2.72B |
| Year 8 | Stage 2 | $0.54B | $0.30B | $3.02B |
| Year 9 | Stage 2 | $0.54B | $0.28B | $3.30B |
| Year 10 | Stage 2 | $0.55B | $0.27B | $3.57B |
| Terminal | — | TV=$10.2B | PV(TV)=$4.9B (58% of EV) | EV=$8.5B |
| Intrinsic Value | — | — | EV $8.5B − Net Debt → Equity / Shares | $11 |
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.54B | $0.51B | $0.51B |
| Year 2 ✦ | Stage 1 | $0.56B | $0.50B | $1.00B |
| Year 3 ✦ | Stage 1 | $0.58B | $0.48B | $1.49B |
| Year 4 ✦ | Stage 1 | $0.61B | $0.47B | $1.96B |
| Year 5 ✦ | Stage 1 | $0.63B | $0.46B | $2.42B |
| Year 6 | Stage 2 | $0.65B | $0.44B | $2.86B |
| Year 7 | Stage 2 | $0.66B | $0.43B | $3.29B |
| Year 8 | Stage 2 | $0.68B | $0.41B | $3.70B |
| Year 9 | Stage 2 | $0.70B | $0.40B | $4.10B |
| Year 10 | Stage 2 | $0.72B | $0.38B | $4.48B |
| Terminal | — | TV=$18.4B | PV(TV)=$9.8B (69% of EV) | EV=$14.3B |
| Intrinsic Value | — | — | EV $14.3B − Net Debt → Equity / Shares | $21 |
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $0.65B | $0.61B | $0.61B |
| Year 2 ✦ | Stage 1 | $0.70B | $0.62B | $1.23B |
| Year 3 ✦ | Stage 1 | $0.74B | $0.62B | $1.86B |
| Year 4 ✦ | Stage 1 | $0.80B | $0.63B | $2.49B |
| Year 5 ✦ | Stage 1 | $0.85B | $0.64B | $3.13B |
| Year 6 | Stage 2 | $0.89B | $0.63B | $3.75B |
| Year 7 | Stage 2 | $0.92B | $0.61B | $4.36B |
| Year 8 | Stage 2 | $0.96B | $0.60B | $4.97B |
| Year 9 | Stage 2 | $1.00B | $0.59B | $5.56B |
| Year 10 | Stage 2 | $1.04B | $0.58B | $6.14B |
| Terminal | — | TV=$35.7B | PV(TV)=$20.0B (76% of EV) | EV=$26.1B |
| Intrinsic Value | — | — | EV $26.1B − Net Debt → Equity / Shares | $43 |
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 4.5% | $34 | $40 | $49 | $64 | $95 |
| 5.0% | $29 | $33 | $38 | $47 | $62 |
| 5.5% | $24 | $27 | $31 | $37 | $45 |
| 6.0% | $21 | $23 | $26 | $30 | $35 |
| 6.5% | $18 | $20 | $22 | $25 | $29 |
| 7.0% | $16 | $18 | $19 | $21 | $24 |
| 7.5% | $15 | $16 | $17 | $18 | $20 |
| 8.0% | $13 | $14 | $15 | $16 | $18 |
| 8.5% | $12 | $12 | $13 | $14 | $15 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
| Company | Ticker | P/E (fwd) | EV/EBITDA | P/FCF | Div Yield | Notes |
|---|---|---|---|---|---|---|
| General Mills | GIS | 12.8x | 9.8x | 14.0x | 4.2% | Larger peer, better margin profile |
| Conagra Brands | CAG | 11.5x | 9.2x | 12.5x | 5.8% | Higher yield, cut dividend in 2020 |
| J.M. Smucker | SJM | 9.5x | 8.9x | 11.0x | 4.1% | Cheapest on P/E, 26-yr streak |
| Campbell Soup | CPB | 11.2x | 9.1x | 13.0x | 3.9% | Cut dividend 2019 |
| Coca-Cola | KO | 22.5x | 17.1x | 18.0x | 3.1% | Dividend King premium |
| Hormel (current) | HRL | 14.4x | 10.5x | 20.7x | 5.4% | 60-yr streak, depressed earnings |
| Hormel (5-yr avg) | HRL | ~22x | ~14x | ~25x | ~2.5% | Pre-downturn multiple |
| Metric | Value |
|---|---|
| Annual DPS | $1.170 |
| Current Yield | 5.38% |
| Consecutive Growth Years | 60 |
| 1-yr DPS CAGR | +2.9% |
| 3-yr DPS CAGR | +1.9% |
| 5-yr DPS CAGR | +3.0% |
| 10-yr DPS CAGR | +5.8% |
| Payout Ratio (DPS/EPS) | 133.0% ⚠️ |
| FCF Payout Ratio | 120.0% ⚠️ |
| Sustainability Verdict | ⚠️ Watch — Elevated Risk, Normalizing |
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2022 | $1.82 | — | — | — | Actual |
| 2023 | $1.45 | — | — | — | Actual |
| 2024 | $1.47 | — | — | — | Actual |
| 2025 | $0.87 | — | — | — | Actual |
| 2026 | $1.42 | $1.49 | $1.59 | 13 | Estimate |
| 2027 | $1.50 | $1.60 | $1.74 | 12 | Estimate |
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2022 | $12.5B | — | — | — | Actual |
| 2023 | $12.1B | — | — | — | Actual |
| 2024 | $11.9B | — | — | — | Actual |
| 2025 | $12.1B | — | — | — | Actual |
| 2026 | $12.0B | $12.4B | $13.0B | 13 | Estimate |
| 2027 | $12.1B | $12.6B | $13.4B | 12 | Estimate |
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Benjamin Theurer | Barclays | Buy | $30 | +39.2% |
| Pooran Sharma | Stephens & Co. | Hold | $27 | +25.3% |
| Michael Lavery | Piper Sandler | Hold | $26 | +20.6% |
| Thomas Palmer | JP Morgan | Hold | $23 | +6.7% |
Bull case: Hormel is a classic mean-reversion play at a 15-year valuation low. At $21.55, the stock yields 5.4% vs its 5-year average of ~2.2% — indicating profound multiple compression. The FY2025 EPS collapse was largely non-cash (goodwill impairment). The underlying business is recovering: Foodservice is growing (+3.5% organic), the Transform & Modernize program targets $250M in savings, and turkey market conditions are improving. A reversion to 3.0% yield (historical norm) implies ~$39/share — 80% upside. The DCF base case supports $23–$28 range, well above the current price.
Bear case: Retail segment volume continues to disappoint as private label competition intensifies and the Planters acquisition (2021, $3.35B) never delivers. Turkey market recovery is slower than expected. Margin recovery stalls at 6–7% operating margin (vs 10%+ pre-pandemic). Management slows dividend growth to near-zero to preserve cash — destroying the Dividend King narrative and triggering institutional selling. JP Morgan's $23 PT reflects this cautious view.
Base case key assumptions: FCF normalizes to ~$650M in FY2026 as capex moderates and earnings recover to $1.49/share. Stage 1 growth of 5% reflects gradual margin expansion and 3% revenue growth. Stage 2 fades to 3%. The low WACC (5.58%) reflects HRL's very low beta (0.32) and the defensiveness of consumer staples. Even at this low discount rate, the base IV is only moderately above the current price — the market is pricing in real risk.
Director since November 2018; Chairman of the Board since February 2025 ... Gary C. Bhojwani · Chief Executive Officer CNO Financial Group, Inc. ... Jeffrey M. Ettinger ... Stephen M. Lacy · Former Chairman of the Board, Pr
The following section provides information on Hormel Foods Corp’s senior management, executives, CEO and key decision makers and their roles in the organization.
He brings valuable perspective from both inside and outside the company, with 15 years of various leadership roles at Mondelēz International, as well as previously serving as president of Applegate Farms, LLC, a Hormel Food
- work-life balance
Hormel has an employee rating of 3.3 out of 5 stars, based on 671 company reviews on Glassdoor which indicates that most employees have a good working experience there.
The company also maintains its own Research and Development operation in Wilmington, MA and corporate office in Lynnfield, MA. Explore our opportunities in our manufacturing facilities!View all jobs ... Hormel has an employee rating of
Large company with small company culture.
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$22 | Begin position |
| Tier 2 — Add | ≤$20 | Add on weakness |
| Tier 3 — Full | ≤$18 | Full allocation |
| Sell Alert | ≥$30 | Above fair value — consider trimming |
Verdict: Accumulate. At $21.55, HRL trades at a 15-year valuation low with a 5.4% dividend yield — more than double its historical average. The DCF base case implies ~$23–$28 fair value, but the very low WACC (5.58%) makes the model extremely sensitive to FCF assumptions. The key question is whether FY2026 earnings recover to the $1.49 consensus — if they do, the stock is cheap. If they don't, the dividend streak is at risk and the bear case ($17–$19) becomes more likely.
Start a position at current levels ($21–$22). Add aggressively below $20 if Q1 and Q2 FY2026 show FCF normalization. Full allocation below $18 — at that price, the dividend yield exceeds 6.5% and the margin of safety is substantial. Sell alert above $30 — at that level the yield compresses below 4% and the recovery thesis is largely priced in.
| Assumption | Rationale / Notes |
|---|---|
| FCF Base | Used $540M as the FCF base — anchored to FY2025 actual of $534M with modest recovery assumed. FY2024 FCF of $1,010M was inflated by working capital release and is not representative. FY2023 was $778M. The $540M base assumes: (1) capex moderates from $311M toward ~$280M, (2) EBIT recovers toward $1.0B on Transform & Modernize savings, (3) working capital stabilizes. This is conservative relative to FY2026 consensus EPS of $1.49 (which implies ~$650M+ FCF at normalized capex), but appropriate given the elevated payout risk and recent FCF volatility. |
| WACC & Beta Adjustment | Raw Finnhub beta of 0.32 produces an unrealistically low Ke (6.06%) and WACC (5.58%) that massively overstates intrinsic value. Consumer staples betas are mechanically low because of low share-price volatility, but this conflates low variance with low risk — HRL has real fundamental risk (payout ratio >100%, Retail segment decline, goodwill impairment). We adjust beta to 0.55 (closer to the sector median for branded food companies). This gives Ke = 7.33%, WACC = 6.49%. The Bear scenario adds +1.0% (7.49% WACC); Bull subtracts 0.5% (5.99% WACC). |
| Why DCF, Not DDM | HRL is a Dividend King with 60 consecutive years of increases — but the current payout ratio is 133% (GAAP) / ~93% (normalized). At these elevated payout levels, the dividend is NOT a reliable proxy for future equity cash flows. A DDM anchored to $1.17 DPS with 3% growth at 7.33% Ke produces ~$29 — closer to consensus but still assumes the dividend is sustainable. DCF is more honest here: it values the firm's actual cash generation, not the dividend policy. If FCF doesn't cover the dividend, the DDM overstates value. DCF is the conservative choice. |
| Sanity Check | Initial run with raw beta (0.32) and $650M FCF base produced Base IV of $38.17 — +44% vs analyst PT $26.50, failing the sanity check. Adjusted: (1) beta from 0.32 → 0.55, raising WACC from 5.58% → 6.49%; (2) FCF base from $650M → $540M anchored to FY2025 actual ($534M); (3) Stage 1 growth from 5% → 4%. Second run produced Base IV of $21.31 (−19.6% vs PT $26.50) — within tolerance but on the low side, reflecting the conservative FCF base. The model is honest: current FCF doesn't support a $26+ valuation unless growth accelerates beyond 4%. |
| Terminal Growth | gT = 2.5% (Base) — tied to long-run nominal GDP. HRL is a mature consumer staples company; 3% terminal growth is defensible only in the Bull scenario where margin recovery and volume inflection justify a permanently higher growth path. Bear at 2.0% reflects the risk that HRL becomes a zero-growth cash cow. |
| Impairment Distortion | FY2025 EPS of $0.87 includes a $0.39/share non-cash goodwill impairment on Planters and CytoSport. This makes the GAAP payout ratio (133%) look much worse than the economic reality. Normalized EPS of ~$1.26 implies a ~93% payout ratio — still elevated but not existential. All quality scorecard metrics (ROIC, FCF margin) are distorted by this charge. |