In a world of “big data” tech giants and innovative new energy technologies, Hormel Foods (NYSE:HRL) — the folks who bring American households Spam and Skippy peanut butter, among other well-known food products distributed around the country — may not seem like an exciting stock purchase.
But the Minnesota-based company has a consistent record of performance that not many rivals can match. Hormel is actually one of the oldest American firms, going back to 1891. It has enjoyed national distribution of its products since the boom years after World War I and has shown resilience in all kinds of markets.
Country Crock and Dinty Moore are some of the other brand names owned by the company; they are probably familiar to anyone who has been in an American supermarket.
The company offers a combination of capital gains and income for the long-term investor. The stock’s 2.1% dividend yield is not spectacular, but it has increased its payout for more than 50 years in a row. The dividend has increased by a compound annual rate of about 15% during the last 10 years.
Because of the consistent dividend, a $10,000 investment in Hormel 10 years ago would have grown to about $45,000 today, assuming the dividends were reinvested, for an annual return of 17%.
Hormel Holding Its Own Against Competitors
The interesting question about Hormel in recent years has been whether the Spam-maker could adapt to changing tastes, as Americans shift toward healthier eating options. So far management hasn’t chalked up any huge successes, but it has successfully defended its market share against quite a few newer competitors.
Hormel has sold off some of its less productive items, such as Diamond Salt, while picking up brands with more growth potential, such as Wholly Guacamole. The company has relationships with big retailers and distributors that go back decades, which gives it an advantage over most of its rivals.
Analysts have been concentrating on recent revenue growth numbers, which have indeed been sluggish. But over the last 10 years, its average annual growth rate has been a solid 4%, better than many competitors in its industry.
Considering how long the company has been in existence and how well known its core brands are, the long-term figures probably give the most reliable guidance as to what the future holds.
The company is run in a fairly cautious, old-fashioned manner, which has left it with one of the strongest balance sheets around. Its equity is over $5 billion, while debt is under $1 billion, a very strong ratio.
Some companies try to leverage debt for spectacular short-term results, which leads to problems down the line. Hormel’s management takes essentially the opposite approach, keeping its eyes on the farthest horizon.
Hormel has actually been more nimble at maintaining its sales growth than some of its bigger competitors, such as Philip Morris (NYSE:PM), Kraft Heinz (NASDAQ:KHC) and Campbell Soup (NYSE:CPB).
Bottom Line on HRL Stock
With a price-earnings ratio of around 21, the stock seems appropriately valued given its growth prospects. Hormel is the kind of unspectacular but steady company that can provide returns for the long haul, despite any ups and downs in the broader market.
The author does not own any of the stocks mentioned in this article.
