Is Hormel Foods a Value Opportunity After This Year’s 31.5% Share Price Drop?

• Wondering if Hormel Foods is a bargain or a value trap? Here is a breakdown of whether the market is missing something important with this stock.
• The share price has fallen sharply by 8.8% over the past week and is down 31.5% so far this year. This raises questions about whether risk or opportunity is driving the latest moves.
• News outlets have been discussing shifting consumer trends and competitive pressures in the packaged foods sector, both of which are shaping investor sentiment toward Hormel Foods. Analysts have also commented on the company’s ability to adapt its product lineup, which could indicate longer-term changes in market position.
• On our valuation checks, Hormel Foods scored a 5 out of 6, making it one of the more interesting names to keep an eye on. Next, we look at what the most common valuation methods show, but there is also a different way to understand a stock’s value that will be examined by the end of this article.

Find out why Hormel Foods's -27.7% return over the last year is lagging behind its peers.

Approach 1: Hormel Foods Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and then discounting those amounts back to today's value. This approach provides a data-driven way to see what a business is truly worth, based on the cash it is expected to generate.

For Hormel Foods, the most recent Free Cash Flow was $652.97 Million. Analysts forecast Free Cash Flow to grow, reaching $857.5 Million by 2027. Simply Wall St further extrapolates these projections out ten years, estimating FCF could climb to $1.15 Billion by 2035. All figures are in USD.

Using these projections and the 2 Stage Free Cash Flow to Equity model, Hormel Foods is estimated to have an intrinsic value of $42.61 per share. With the current share price trading at a 49.4% discount to this estimate, the model suggests the stock is significantly undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Hormel Foods is undervalued by 49.4%. Track this in your watchlist or portfolio, or discover 840 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Hormel Foods.

Approach 2: Hormel Foods Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like Hormel Foods because it directly reflects what investors are willing to pay for each dollar of current earnings. The PE ratio is particularly relevant here, as Hormel’s business generates consistent profits, making this measure both meaningful and practical.

It is important to note that what constitutes a “normal” or “fair” PE ratio varies depending on how quickly a company is expected to grow and the risks investors see in its future. Higher growth typically justifies a higher PE, while higher risk tends to push the ratio lower compared to peers.

Hormel Foods is currently trading at a PE ratio of 15.7x. This is slightly below the Food industry average of 17.7x and well above its peer group average of 8.3x. Looking beyond these benchmarks, the proprietary “Fair Ratio” calculated by Simply Wall St for Hormel is 16.6x. This Fair Ratio takes into account the company’s earnings growth prospects, profit margins, industry dynamics, market cap, and specific risk factors. This provides a more tailored benchmark than broad industry or peer comparisons.

When comparing the stock’s current PE of 15.7x to its Fair Ratio of 16.6x, Hormel Foods appears to be valued about right by the market. The small difference suggests that while the market may be cautious due to recent challenges, the share price aligns closely with the company’s longer-term fundamentals.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Hormel Foods Narrative

Earlier we mentioned there is an even better way to understand valuation, so now let’s introduce you to Narratives. A Narrative is your personalized story about a company; it is a way to combine your unique perspective on its business, future prospects, and risks with your own estimates for revenue, margins, and fair value.

Narratives help you go beyond just the headline numbers. They link the actual story behind Hormel Foods’ business to a financial forecast, and then translate that outlook into a fair value estimate. Available to all investors right on Simply Wall St’s Community page, Narratives are designed to be accessible whether you’re a beginner or an experienced investor.

With Narratives, you can clearly see how your assumptions about Hormel Foods compare with others, and quickly decide if now is the right time to buy or sell by contrasting your calculated Fair Value to the current share price. The power of Narratives is that they update dynamically whenever new information or news, such as earnings or industry shifts, emerges and help you stay ahead of the market.

For example, on Simply Wall St’s platform, the most optimistic investors believe Hormel Foods is worth as much as $34 a share based on robust growth from innovation and healthier products. The most cautious investors have set their value as low as $25, based on risks like shifting consumer trends and volatile input costs.

Do you think there's more to the story for Hormel Foods? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com