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Here’s Why Hormel Foods is a Solid Pick for Your Portfolio

Zacks

The U.S. equity market is in jitters as possibilities of a trade war with China and three or more rate hikes by the Federal Reserve do the rounds.

When the market is turbulent, the consumer staples sector can be one of the safest go-to places for investors. Predominant as an abode of defensive stocks, this space primarily includes companies that offer products and essentials used in daily lives.

However, China’s aggressive stance of slapping 25% tariffs over American imports on Apr 1 has affected the U.S. agricultural, meat products, as well as farm equipment companies, congregated under the consumer staples sector.

Nevertheless, the operative date for the imposition of these tariffs has not been disclosed yet.

Per our latest Earnings Preview (Apr 6, 2018), the first-quarter 2018 earnings and revenues of consumer staples stocks in the S&P 500 group will likely climb 4.4% and 2.8%, respectively, year over year.

Among the numerous potential gainers within the sector, adding Hormel Foods Corporation HRL to your portfolio will bear fruit.

Over the last month, this Zacks Rank #2 (Buy) stock has gained 4.9%, as against the 2.2% loss incurred by the industry.



Reasons for the Bullish Run

Revenue Growth: Consumers’ loyalty toward popular brands, such as Skippy, Spam, Hormel Black Label bacon, Muscle Milk and Wholly Guacamole dips, is anticipated to bolster Hormel’s revenues in the quarters ahead. Moreover, the new deli division in the company’s Refrigerated Foods segment will help drive its top-line performance. The company estimates that this division currently possesses a capacity to generate nearly $1-billion annual sales and will act as its next growth engine in the near future.

Additionally, Hormel believes the company’s ongoing marketing programs (like ‘BE SMOOTH LIKE SKIPPY’) will continue to strengthen its revenues in the quarters ahead.

During the first-quarter fiscal 2018 earnings release (Feb 22), Hormel reaffirmed its sales guidance for fiscal 2018 (ending October 2018) in the $9.7-$10.1 billion range.

As per our in-house projections, Hormel’s revenues are projected to be up 5.8% for fiscal 2018 and 3.1% for fiscal 2019 (ending October 2019).

Earnings Growth: Hormel has been steadily improving its profitability on the back of higher revenues and increased operational excellence. In addition, the company believes reduced corporate tax rates (on account of the Tax Cuts and Jobs Act implementation in December 2017) will aid in driving its bottom-line growth.

During the fiscal first-quarter earnings release, Hormel raised its earnings per share (EPS) view for fiscal 2018 to the $1.81-$1.95 per share range, higher than the prior guidance of $1.62-$1.72 per share.

Acquisitions Story: Hormel intends to strengthen its business on the back of strategic acquisitions. Well-planned buyouts like CytoSport Holdings, Inc. (August 2014), Justin’s, LLC (June 2016), Fontanini brand from Capitol Wholesale Meats, Inc. (August 2017), Ceratti brand from Cidade do Sol. (August 2017) and Columbus

Manufacturing, Inc. (November 2017) will likely continue to boost the company’s revenues and earnings in the near term.

Upward Estimate Revisions: Over the last 60 days, the Zacks Consensus Estimate for Hormel’s earnings has moved up 2.4% to $1.72 for fiscal 2018 and 6.3% to $1.87 for fiscal 2019. The positive earnings estimate revisions indicate upbeat market sentiment and substantiate the Zacks Rank #2 for the stock.

Notably, Hormel’s earnings will likely grow 9.6% for fiscal 2018 and 8.4% for fiscal 2019. Furthermore, the company’s EPS is predicted to rise 9.3% over the next three to five years.

Other Stocks to Consider

Some other top-ranked stocks in the Zacks Consumer Staples sector are listed below:

The J. M. Smucker Company SJM sports a Zacks Rank of 1 (Strong Buy). The company’s EPS is predicted to grow 7.9% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

US Foods Holding Corp. USFD also flaunts a Zacks Rank #1. The company’s EPS is projected to rise 17% over the next three to five years.

Flowers Foods, Inc. FLO carries a Zacks Rank of 2. The company’s EPS is estimated to be up 6.1% during the same time frame.

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