Hormel Foods (HRL) Stock | Long Term Analysis | Overvalued or Undervalued |

Transcript (auto-generated)

All right hello and welcome everybody to another stock analysis video where today we’ll be talking about hormel ticker symbol HRL now this company is trade on the new york stock exchange and this is a viewer request this is a company that is definitely doing well over the past 20 or so years this company is definitely a well performer in the stock market and so i want to do in this video is talk about how this company performs in terms of actually making good acquisitions how its management is how this company actually makes money et cetera so i’m going to provide a long-term analysis for this company project maybe long-term growth things like that i also want to talk about the value of this company so we’ll give a full value analysis on this company which is something that we like to do and this will go into the intrinsic value of the stock also the book value and then the price earnings and numerous other technicals like that so we’ll talk about all those in this video anyway if you liked this video please do like subscribe but this is about our channel and let’s get this content out to more people so that more people can understand how hormel works and also those socks that we talk about work as well on our channel anyway thank you so much for watching without further ado let’s get started now hormel foods works in numerous industries but one of the larger industries that they work in is the meat processing industry so this is a fine industry in my opinion as i’m not too concerned about beyond me making maybe a product that would potentially render me inferior so i don’t expect people to be all of a sudden switching into a fake burger um at this point i do think that it’s a very good switch at least that they’re trying to offer a product if people are trying to be maybe more healthy or trying to not eat a processed meat then that is something that they could work with however i would say that this company still has a very strong standing and maybe the pepperoni business is something that they work a lot in as well and so i really don’t think that this company has too much competition from beyond me or the other plant-based companies like that at this time now we also have to understand that this company does do very well in the soup industry as well they work with digimore as one of their large companies that they own and this is a company that definitely should be able to do very well in the long term too as i don’t see much problems with the soup industry at this time or in the future at all now i’m not going to sit here and say that i love everything that this company does for example the real noticeable problem with this company is that they’re getting into the peanut industry in my opinion i don’t see this as a good industry and the real problem with this is since there has been an increase in the number of people being allergic to peanuts over numerous years and this is the percentage of the amount of people that have been allergic to peanuts over years and so this has been increasing year over year relatively and so the problem is as there are more newborns it seems to be that there’s been a more of a problem with people actually having nut allergies if people have knowledges they’re never going to buy skippy’s peanut butter or they’re never going to buy you know peanuts from planters or anything like that planters was an acquisition that they made from craft heinz back in 2021 and they purchased them for 3.35 billion dollars now this was great for craft heinz in my opinion because they were offloading some assets that might have been potentially ruined due to this increase but i also am not disappointed in hormel for buying this company just due the fact that i don’t see too much growth in this industry at this time now in terms of growth the company has made very good management decisions that have led them to growth in income over each year now obviously with innovative acquisitions and a path forward to growing their business i see this stock as a pretty well to do growth stock already however determining the proper value of this stock is going to get a bit tricky the company currently has an intrinsic value of about 23 a share and this is the projected free cash flow model of calculating the intrinsic value of the stock now there are of course many ways of calculating the interest value this is just one way if we scroll down i can show you exactly how this is calculated now we can see that the growth multiple is at about 9.52 this is essentially a growth of the earnings each year it’s a percentage growth of the earnings each year now the growth multiple here is not high because the company doesn’t really grow that quickly now although i said that this company could be a pretty good growth stock there are going to be like a tech stock of course because tech stocks tend to be pretty innovative in the fact that they are going to make maybe a product that will all of a sudden make the company enormous amounts of money hormel is a food company so it’s a very different industry and i don’t see too much fast growth for that company however they do offer pretty good events and do other things like that so i’ll talk about all that in a moment but the company here right now doesn’t grow very quickly so i understand that the intrinsic value is not going to be very high based off of this model now we also have to understand that they have a pretty high free cash flow so we multiply the free cash flow by the growth multiple here then we add the total stock exactly which is simply the assets minus the day of the company so that takes them account the book value of the company then we multiply that by 0.8 and then divide by the shows that it’s saying in the market in order to get the intrinsic value per share of the company now once again the artistic value is still not very high and relative to the current trading price of the stock which is at about forty four dollars a share this would suggest that the company is currently well overvalued now there are many ways of crackling you take value like i said so do not take this as the final value of the stock we’re going to talk about price during things like that so we’ll get into more stuff in a moment this company does have plenty of assets at least relative to its intrinsic value we can see that they have assets standing to be at about 12.40 a share so in the food industry that’s pretty low of a price to book but we also have to understand that this company does have some pretty good earnings and this company does have pretty good management so people are willing to pay a bit of a premium for the idea this company has been able to increase in their income consistently over each year now based off of value this company still does actually have a consistently increasing shareholder equity with the company’s consistent increase in shareholder equity over each year this has allowed the company to grow and book value consistently as long as they’re not increasing the outstanding shares in the market or anything like that so that’s a huge plus for this company and so as a value investor i like to see the company’s shared equity consistently increase because that helps to increase the intrinsic value which helps to justify a higher trading value for the stock now how this happens is because the company is making lots of money and this company is making consistently more money over every single year approximately so we can look at the company’s net income and see if the company is big bringing in about 250 to 220 million dollars a quarter now that’s a lot of money this company is consistently bringing this money in as well because this is not the free cash flow this is not the revenue of the company this is truly the net income of the company which i consider to be the profit of the company this is essentially what you get after paying workers after paying taxes after paying numerous things so any kind of fees this also takes into account to the depreciation of assets too so the net income is something that really helps to show if a company is really profitable or not and this company is certainly profitable now we can see that this company of course has been increasing their income and that has allowed the company to grow and share with equity consistently now this rate of growth in the shared equity has consistently increased and this is because the quarterly net income has increased as well so with cubby bringing in more and more money this company has had a faster and faster increase in shared equity because the shareholder equity is still the assets minus the day of the company so keep that in mind consistent increase in child equity helps justify higher intrinsic value and so with the consistent income increase as well that should help to justify the higher trading value as well because once again increases the intrinsic value and also helps to decrease the priced earnings now let’s take a look at the price earnings of the company we see that this company currently trading about 45 dollars a share and the income consistently increasing this couple of these price earnings is still really high at about 27 or 28 now this is not really good for a food company food companies really tend to trade around price earnings of 15 so this is almost double that so i would expect this to kind of decrease in the future this company did have a lower price earnings they had about eight price tags of 18 back in 2017 which is a lot more reasonable but with the consistent jump in trading value over the recent pandemic this company has unfortunately had a higher priced earnings over that time so we don’t know what’s going to happen with the future of this company if you’re watching this video maybe a couple years from now and you see the price during just down to around 15 that would suggest that the company is likely to be more fairly valued at that time compared to right now where it’s at price about price tearing so about 28. now unfortunately this company has been increasing the outstanding shares in the market which unfortunately decreases the intrinsic value and decreases the book value of the company because when there are more shareholders of the company there are more shares outstanding in the market this means that the company is actually distributing its assets across more people and more shares so your shares become worth less and less and less because there’s less assets through its name and also less of a company to its name so certainly keep that in mind that the company i mean right now they are trying to really issue more shares because the company knows that the company’s trading value is pretty high so with the company having a trading value relatively high that means that if they issue more shares they can likely profit and then just buy back their own stock later on with that money so this company i think is actually playing its shares in the right way at this point because with the consistent issuing of shares that isn’t very good for the shareholders but this is also suggesting that the company is overvalued because hormel normally wouldn’t issue more shares as we can see they have been willing to buy back their own stock and decrease the outstanding shares in the market over past years now i can’t predict the future but i expect this company to go back to buying back its own stock and doing other things like that when the shares of the company are not as expensive now let’s take a look at the dividend of this company and this is really the final thing that i like to look at for when we’re evaluating a company we consider that the company’s demand yields about 2.1 and so that is currently pretty okay but for hormel and for other food companies this is really low normally food companies can offer a bear a dividend and so i’d say on average the dividend is probably really about three percent for most companies in this industry so hormel seems to be pretty low and this is because the trading value of hormel is pretty high so within increasing the trading value of the stock this has decreased the demand yield because this company is not paying necessarily a higher dividend just because the trading value is increased for the stock they are paying a higher dividend because their earnings have increased but they can’t increase the dividend as fast as the growth of the trading value of the stock so therefore the demand yield has struggled to increase so definitely keep that in mind i think that this company at this point is not necessarily an amazing dividend stock however they do pay out a very consistent dividend and they can afford to pay it out but relative to other good food companies you can likely get a much better demand and buy a much more undervalued stock compared to this one at this time so we’ll have to look at this company in the future as well however this is a long-term analysis so based off of the growth of the company i do expect this company to be able to consistently grow in the long term however i don’t expect them to offer very good value for value investors at this time so overall that’s what i think about this company do note that i’m not a financial advisor or anything like that and so this is not financial advice so please do your own research for investing anyway thank you so much for watching if you like this video please do like subscribe and this is about our channel and please comment down below and tell us what you think about this company we’ll try to get back to you anyway thanks again for watching have fun everybody