Insiders Are Selling Shares of Hormel Foods Corp (HRL), HollyFrontier Corp (HFC), and This REIT

The dollar volume of insider selling has been on the rise over the past several weeks, with voluminous insider selling at Facebook Inc. (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL) accounting for a high portion of this week’s overall volume of insider sales activity. Nonetheless, a lot of insider selling activity, including what was observed at the social networking giant and the iPhone maker this week, was connected with either freshly-exercised stock options or pre-arranged trading plans. Numerous corporate insiders use pre-arranged 10b5-1 trading plans to diversify their holdings, as these trading plans offer a convenient way to sell shares without worrying about possible securities fraud charges. Insider Monkey avoids examining transactions conducted under trading plans, instead focusing on only spur-of-the-moment insider purchases and sales. A fresh study concludes that spontaneous or so-called opportunistic insider trades tend to generate higher returns than those conducted under trading plans. With that in mind, the following article will examine the insider selling activity recently registered at three companies.

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HollyFrontier Corp (NYSE:HFC) had one of its most influential executives offload shares this past week. Executive Chairman Michael C. Jennings discarded 35,000 shares last Tuesday at prices varying from $35.48 to $35.64 per share, trimming his overall holding to 177,169 shares. In late February, Mr. Jennings also unloaded 100,000 shares at prices that fell between $32.98 and $34.41 per share. HollyFrontier is an independent petroleum refiner that produces various refined products such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. The company owns and operates refineries that have a combined crude oil processing capacity of 443,000 barrels per day, serving markets throughout the Mid-Continent, Southwest, and Rocky Mountain regions of the United States.

HollyFrontier Corp (NYSE:HFC)’s sales and other revenue for 2015 declined to $13.24 billion from $19.76 billion in 2014. The large decrease in the company’s 2015 top-line figure was primarily driven by a decrease in sales prices, partly offset by higher refined product sales volumes. More importantly, net income for 2015 reached $740.10 million, or $3.91 per basic share, increasing from $281.29 million, or $1.42 per basic share, reported for 2014. The increase was mainly attributable to higher refining margins and sales volumes, as well as enhanced operational reliability and lower operating expenses. The company’s refinery gross margins increased to $16.07 per produced barrel in 2015 from $13.98 in 2014.

Just recently, analysts at Goldman Sachs downgraded HollyFrontier to ‘Sell’ from ‘Neutral’ and lowered their price target on it to $34 from $37, citing expectations of low crude oil differentials, premium valuation as compared to other refiners and possible 22%-to-26% downside to consensus earnings per share. Even so, some analysts and investors believe that HollyFrontier’s stock performance was pressured by lower crude oil prices, which created good entry points. The shares of the petroleum refiner are down by 8% in the past 12 months and change hands at 9.0-times expected earnings, below the forward P/E ratio of 10.3 for the Oil and Gas Refining and Marketing industry. The number of hedge funds in our system with stakes in the company declined to 34 from 40 during the December quarter. Israel Englander’s Millennium Management reported ownership of 4.59 million shares of HollyFrontier Corp (NYSE:HFC) through its 13F for the final quarter of 2015.

On the next two pages of this insider trading article we’ll examine the insider selling registered at Eastgroup Properties Inc. (NYSE:EGP) and Hormel Foods Corp (NYSE:HRL).

According to a Form 4 filing, one member of Eastgroup Properties Inc. (NYSE:EGP)’s Board of Directors discarded a sizable block of shares last week. Chairman David H. Hoster II, former Chief Executive Officer of the self-administered real estate investment trust (REIT), sold 24,208 shares last Thursday at prices varying from $60.00 to $60.04 per share, trimming his direct ownership stake to 205,493 shares. Mr. Hoster also holds an indirect ownership stake of 50,000 shares in a family trust for the benefit of his children. The REIT focuses on the development, acquisition and operation of industrial properties in major Sunbelt markets across the United States, primarily focusing on the states of Florida, Texas, Arizona, California and North Carolina.

During 2015, Eastgroup Properties acquired two warehouse distribution complexes and 112.6 acres of development land for $50.9 million. Moreover, the company also started the construction of 11 development projects, as well as transferred 17 properties from its development program to real estate properties. Therefore, the REIT appears to have been quite successful in growing its business throughout 2015. Eastgroup Properties generated funds from operations (FFO) of $118.17 million in 2015, up from $109.00 million in 2014. The REIT’s property net operating income (PNOI) increased by $10.66 million to $167.51 million in 2015, as a result of an increase of $6.31 million from newly-developed properties, $3.03 million from same-property operations, as well as $2.61 million from acquisitions. Moreover, leases expired on 6.83 million square feet during 2015, which accounted for 19.6% of total square footage, but the company successfully renewed and re-leased 90% of the expiring square feet. What’s more, leases on 13.5% of the REIT’s portfolio were scheduled to expire in 2016, but the percentage has already dropped to 10.6% of the portfolio through mid-February.

Shares of Eastgroup Properties are 7% in the green year-to-date but trade at a rather expensive forward P/E of 34.2. The REIT offers an annualized dividend rate of $2.40 per share, which equates to a dividend yield of 4.01%. D.E. Shaw & Co., founded by David E. Shaw, owns 47,355 shares of Eastgroup Properties Inc. (NYSE:EGP) as of the end of December.

Hormel Foods Corp (NYSE:HRL) has seen four different insiders sell shares in the past month, so let’s take a closer look at the most recent insider selling. Director Elsa A. Murano sold 6,000 shares on Wednesday for $43.00 each, cutting her ownership position to 60,767 shares. Furthermore, Thomas R. Day, Group Vice President of Refrigerated Foods, reported the sale of 10,000 shares that occurred exactly three weeks ago, all of which were held by his spouse’s irrevocable trust. The 10,000 share-block was sold at $44.00 apiece. Mr. Day also holds a direct ownership stake of 4,758 shares, along with an additional 18,372 shares held via a 401K Plan and 17,033 shares through JEPST Plan.

As the name suggests, Hormel Foods is a processor of branded and unbranded products for retail, foodservices, and fresh product customers. The company’s shares have advanced by 200% in the past five years and by 47% in the past year alone, which makes us believe that insiders are taking some profits off the table. In November, the company’s Board of Directors authorized a two-for-one split of its voting common stock, with the shares beginning to trade at the post-split price in early February Although this move does not change anything for long-term shareholders, save for the number of shares owned, swing traders, day traders and other short term-oriented investors will mostly likely benefit from increased liquidity.

Hormel Foods conducts its business operations through five main segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, Specialty Foods, and International & Other. The company’s net sales for the first quarter of fiscal year 2016 that ended January 24 totaled $2.29 billion, down from $2.40 billion reported for the same period of the prior year. The company’s Refrigerated Foods segment, which accounted for 51% of total net sales in the fiscal first quarter, was the only segment that registered a year-over-year increase in net sales, to $1.16 billion from $1.14 billion, mainly due to the acquisition of Applegate in July, which contributed $76.3 million to net sales. In the meantime, the stock is priced at around 26.3-times expected earnings, versus the forward P/E ratio of 21.2 for the Packaged Foods sector. Almost every food company trades around 20-times earnings, with competitor Tyson Foods Inc. (NYSE:TSN) trading at 15.9-times earnings and ConAgra Foods Inc. (NYSE:CAG) at 18.7-times expected earnings. Dmitry Balyasny’s Balyasny Asset Management acquired a new stake of 507,339 shares in Hormel Foods Corp (NYSE:HRL) during the December quarter.

Disclosure: None