Hormel Foods Corporation (NYSE:HRL): Time For A Financial Health Check
Investors pursuing a solid, dependable stock investment can often be led to Hormel Foods Corporation (NYSE:HRL), a large-cap worth US$18.98B. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. But, its financial health remains the key to continued success. This article will examine Hormel Foods’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into HRL here. Check out our latest analysis for Hormel Foods
Does HRL produce enough cash relative to debt?
Over the past year, HRL has maintained its debt levels at around US$250.00M made up of current and long term debt. At this stable level of debt, HRL currently has US$444.12M remaining in cash and short-term investments for investing into the business. Moreover, HRL has generated US$1.01B in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 404.08%, signalling that HRL’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In HRL’s case, it is able to generate 4.04x cash from its debt capital.
Does HRL’s liquid assets cover its short-term commitments?
With current liabilities at US$1.06B, it appears that the company has been able to meet these commitments with a current assets level of US$2.03B, leading to a 1.92x current account ratio. For Food companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does HRL face the risk of succumbing to its debt-load?
With debt at 17.06% of equity, HRL may be thought of as appropriately levered. HRL is not taking on too much debt commitment, which may be constraining for future growth. We can test if HRL’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. For HRL, the ratio of 443x suggests that interest is comfortably covered. High interest coverage is seen as a responsible and safe practice, which highlights why most investors believe large-caps such as HRL is a safe investment.
Next Steps:
HRL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how HRL has been performing in the past. I recommend you continue to research Hormel Foods to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HRL’s future growth? Take a look at our free research report of analyst consensus for HRL’s outlook.
Valuation: What is HRL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether HRL is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
