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Hormel Foods (HRL) Retains Scope for Growth, Runs Risks

Zacks Equity Research

We have issued an updated research report on the premium meat products company Hormel Foods Corporation HRL on Aug 20, 2015. The company produces and sells a variety of meat and other food items on a global basis. However, despite holding a high brand value in the market, the company currently faces certain headwinds in its business.

Scopes for Improvement

Hormel Foods follows an innovation-based growth strategy, under which it invests considerable amount of money to develop a non-imitable product portfolio. Favorable input pricing and strategic cost-saving programs support the company’s widening margins. Going forward too, we expect such strategies to successfully enhance the company's top-and bottom-line figures. Based on these optimistic factors, the company has raised its guidance for full-year 2015 earnings to a range of $2.57-$2.63 per share from the previous projection of $2.50-$2.60.

Furthermore, Hormel Foods attempts to enhance the popularity of its products through variable marketing programs; while making constant efforts to expand its operational scale via several inorganic growth programs. At the same time, the company’s commitment toward augmenting its shareholders’ wealth continues to boost its brand status in the market.  

Existing Business Issues

Avian flu outbreak continues to pose serious problems for meat producers like Hormel Foods who depend largely on the chicken segment for revenues. We believe increasing occurrence of such unfortunate incidents will compel U.S. as well as other international consumers to reduce their chicken consumption, which, in turn, will hurt the company’s revenues. The H5N2 Avian influenza was also detected in many turkey-supplying farms of Hormel Foods' Jennie-O Turkey Store division. Further, the flu outbreak poses supply-chain challenges before the company’s operational processes, which might adversely affect its margins in the quarters ahead.

Moreover, strong appreciation of the U.S. dollar in the global currency market and stiff rivalry in the global meat industry expose the company to certain risks, which might trigger a decline in revenues and margins in the near term.

Stocks to Consider

Hormel Foods currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are CVSL Inc. CVSL, Dr Pepper Snapple Group, Inc. DPS and Ingredion Incorporated INGR. All three stocks hold a Zacks Rank #2 (Buy).

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