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Hormel Foods Corporation (HRL): This Food Company Seems Expensive, As Do the Rest!

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Hormel Foods Corporation (NYSE:HRL)Hormel Foods Corporation (NYSE:HRL) is one of the largest producers of meat and food products, and caught my eye when looking for investment candidates in the food industry. While the stock may look expensive upon a first glance, trading for over 22 times TTM earnings, a more in-depth look reveals that this may not be the case at all.

Hormel Foods Corporation (NYSE:HRL)’s business is doing great, as you can see by its recent revenue history below, but after the 35% gain in share price over the past six months or so, should shareholders hold on for more, or get out and take their profits now?

About Hormel Foods

Hormel Foods Corporation (NYSE:HRL) operates its business in five segments: grocery products, refrigerated foods, Jennie-O, specialty foods, and “other.” Grocery products account for 14% of Hormel’s sales and include the company’s shelf-stable food products. Refrigerated foods account for the majority (51%) of the company’s sales and consist of pork and beef products. Jennie-O Turkey Store (19% of sales) consists of the processing and marketing of turkey products to retail and foodservice customers. Specialty foods (11% of sales) include sugar, salt, and pepper products, and the “other” segment (4%) includes Hormel Foods Corporation (NYSE:HRL)’s international sales and marketing efforts.

The company has grown in recent years as a result of strategic acquisitions. To name a few, Hormel acquired Country Crock in 2012 and its line of chilled side dishes in order to complement its own entrée products. Also, Hormel recently acquired the Skippy peanut butter brand, which should help the company’s earnings as the Skippy brand operates at a higher margin than the rest of Hormel’s business.

The Numbers

While we have established that Hormel Foods Corporation (NYSE:HRL)’s sales numbers look very strong, I’m concerned with the rapid rise in the share price lately, which has drastically outpaced the annual revenue growth of around 7%.

At the current share price, Hormel trades at around 22 times TTM earnings and yields 1.64% annually. The company is projected to earn $2.00 per share for 2013, rising to $2.27 and $2.53 in 2014 and 2015, respectively. This translates to an annual forward earnings growth rate of 10.8% annually, which is a little low for such a high valuation. Hormel does have an excellent balance sheet and over $500 billion in net cash (cash minus debt), which is worthy of some consideration, as is the fact that the company has raised its dividend every single year. Still, Hormel seems a bit pricey, so let’s see what else our investment dollar could buy.

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