Hormel Foods Corporation (HRL): Should You Lose Your Appetite For This Food Stock?

From its humble beginnings in 1903, Kraft has steadily grown into the food conglomerate it is today. Shareholders have been enriched along the way. In its current form post-spin off, Kraft recently declared a $0.50 per share dividend, amounting to a solid 3.6% yield at recent prices.

Of course, Hormel Foods Corporation (NYSE:HRL) is no slouch either.  According to the company, Hormel has achieved 11% annual earnings per share growth from 2007 to 2012, along with 6% sales growth over the same period.

A bump in the road, or something more serious?

Unfortunately, all is not well for Hormel. The company cut its fiscal 2013 profit outlook, due primarily to higher input costs, and disappointing results from its pork operations.

All told, the company now expects earnings per share this year to fall between $1.88 per share and $1.96 per share, down from the previous range of $1.93 per share to $2.03 per share.

I wouldn’t overreact to this news. The midpoint of the new profit range represents just a 3% drop from the midpoint of the previous range. Moreover, Hormel Foods Corporation (NYSE:HRL)’s management expects sales gains in other segments as well as international growth to offset a good portion of the decline.

That being said, it’s often a helpful reminder that even great companies can be poor investments if the investor pays too high a price. While I admire Hormel Foods Corporation (NYSE:HRL) as a company, it’s extremely difficult to consider the stock a steal.

Frankly, as a die-hard value investor, I’m not willing to pay 20 times trailing earnings for a consumer goods stock offering single-digit sales growth and a sub-2% dividend yield.

The midpoint of its new 2013 profit range is $1.92 per share. I’m not willing to pay more than the market multiple for those earnings, which means I’d only be interested in Hormel Foods Corporation (NYSE:HRL) at around $32 per share. At that level, the stock would yield close to 2.2% and would present a better value than exists today. Hormel is a great company that will continue paying and raising its dividend for years, but for now I’m content to sit on the sidelines and wait for a better price.

Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Should You Lose Your Appetite For This Food Stock? originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.