Intrinsic value of Hormel Foods Corporation - HRL

Previous Close

$41.45

  Intrinsic Value

$27.04

stock screener

  Rating & Target

sell

-35%

Previous close

$41.45

 
Intrinsic value

$27.04

 
Up/down potential

-35%

 
Rating

sell

We calculate the intrinsic value of HRL stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 22.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  9,737
  9,961
  10,217
  10,504
  10,823
  11,172
  11,553
  11,964
  12,408
  12,884
  13,394
  13,937
  14,516
  15,131
  15,784
  16,476
  17,208
  17,982
  18,800
  19,664
  20,576
  21,537
  22,550
  23,618
  24,742
  25,926
  27,172
  28,483
  29,863
  31,314
Variable operating expenses, $m
  8,415
  8,599
  8,810
  9,047
  9,309
  9,597
  9,911
  10,250
  10,616
  11,008
  11,036
  11,483
  11,960
  12,467
  13,005
  13,575
  14,178
  14,816
  15,490
  16,202
  16,953
  17,745
  18,580
  19,459
  20,386
  21,361
  22,388
  23,468
  24,605
  25,800
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  8,415
  8,599
  8,810
  9,047
  9,309
  9,597
  9,911
  10,250
  10,616
  11,008
  11,036
  11,483
  11,960
  12,467
  13,005
  13,575
  14,178
  14,816
  15,490
  16,202
  16,953
  17,745
  18,580
  19,459
  20,386
  21,361
  22,388
  23,468
  24,605
  25,800
Operating income, $m
  1,322
  1,362
  1,407
  1,457
  1,514
  1,575
  1,642
  1,715
  1,793
  1,877
  2,358
  2,454
  2,556
  2,664
  2,779
  2,901
  3,030
  3,166
  3,310
  3,462
  3,623
  3,792
  3,971
  4,158
  4,356
  4,565
  4,784
  5,015
  5,258
  5,514
EBITDA, $m
  1,821
  1,862
  1,910
  1,964
  2,024
  2,089
  2,160
  2,237
  2,320
  2,409
  2,504
  2,606
  2,714
  2,829
  2,951
  3,081
  3,217
  3,362
  3,515
  3,677
  3,847
  4,027
  4,216
  4,416
  4,626
  4,847
  5,080
  5,326
  5,584
  5,855
Interest expense (income), $m
  13
  38
  41
  45
  49
  54
  59
  65
  71
  77
  85
  92
  101
  109
  119
  129
  139
  151
  163
  175
  188
  202
  217
  233
  249
  267
  285
  304
  324
  346
  368
Earnings before tax, $m
  1,284
  1,321
  1,362
  1,408
  1,460
  1,516
  1,578
  1,644
  1,715
  1,792
  2,266
  2,353
  2,447
  2,545
  2,650
  2,762
  2,879
  3,004
  3,135
  3,274
  3,420
  3,575
  3,738
  3,909
  4,090
  4,280
  4,480
  4,691
  4,912
  5,146
Tax expense, $m
  347
  357
  368
  380
  394
  409
  426
  444
  463
  484
  612
  635
  661
  687
  716
  746
  777
  811
  846
  884
  924
  965
  1,009
  1,055
  1,104
  1,156
  1,210
  1,267
  1,326
  1,389
Net income, $m
  937
  964
  994
  1,028
  1,066
  1,107
  1,152
  1,200
  1,252
  1,308
  1,654
  1,718
  1,786
  1,858
  1,935
  2,016
  2,102
  2,193
  2,289
  2,390
  2,497
  2,610
  2,729
  2,854
  2,986
  3,124
  3,271
  3,424
  3,586
  3,756

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  8,308
  8,499
  8,717
  8,963
  9,234
  9,533
  9,857
  10,209
  10,587
  10,994
  11,428
  11,892
  12,386
  12,911
  13,468
  14,058
  14,683
  15,343
  16,041
  16,778
  17,556
  18,376
  19,241
  20,152
  21,111
  22,121
  23,184
  24,303
  25,480
  26,718
Adjusted assets (=assets-cash), $m
  8,308
  8,499
  8,717
  8,963
  9,234
  9,533
  9,857
  10,209
  10,587
  10,994
  11,428
  11,892
  12,386
  12,911
  13,468
  14,058
  14,683
  15,343
  16,041
  16,778
  17,556
  18,376
  19,241
  20,152
  21,111
  22,121
  23,184
  24,303
  25,480
  26,718
Revenue / Adjusted assets
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
  1.172
Average production assets, $m
  3,184
  3,257
  3,341
  3,435
  3,539
  3,653
  3,778
  3,912
  4,057
  4,213
  4,380
  4,558
  4,747
  4,948
  5,161
  5,388
  5,627
  5,880
  6,148
  6,430
  6,728
  7,043
  7,374
  7,723
  8,091
  8,478
  8,885
  9,314
  9,765
  10,240
Working capital, $m
  458
  468
  480
  494
  509
  525
  543
  562
  583
  606
  630
  655
  682
  711
  742
  774
  809
  845
  884
  924
  967
  1,012
  1,060
  1,110
  1,163
  1,219
  1,277
  1,339
  1,404
  1,472
Total debt, $m
  675
  735
  803
  880
  964
  1,058
  1,159
  1,268
  1,387
  1,513
  1,649
  1,794
  1,948
  2,111
  2,285
  2,469
  2,664
  2,870
  3,088
  3,318
  3,561
  3,817
  4,086
  4,371
  4,670
  4,985
  5,317
  5,666
  6,033
  6,419
Total liabilities, $m
  2,592
  2,652
  2,720
  2,796
  2,881
  2,974
  3,075
  3,185
  3,303
  3,430
  3,566
  3,710
  3,864
  4,028
  4,202
  4,386
  4,581
  4,787
  5,005
  5,235
  5,477
  5,733
  6,003
  6,287
  6,587
  6,902
  7,233
  7,583
  7,950
  8,336
Total equity, $m
  5,716
  5,847
  5,998
  6,166
  6,353
  6,558
  6,782
  7,024
  7,284
  7,564
  7,863
  8,182
  8,521
  8,883
  9,266
  9,672
  10,102
  10,556
  11,036
  11,544
  12,079
  12,643
  13,238
  13,864
  14,524
  15,219
  15,951
  16,721
  17,530
  18,382
Total liabilities and equity, $m
  8,308
  8,499
  8,718
  8,962
  9,234
  9,532
  9,857
  10,209
  10,587
  10,994
  11,429
  11,892
  12,385
  12,911
  13,468
  14,058
  14,683
  15,343
  16,041
  16,779
  17,556
  18,376
  19,241
  20,151
  21,111
  22,121
  23,184
  24,304
  25,480
  26,718
Debt-to-equity ratio
  0.120
  0.130
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.280
  0.290
  0.290
  0.300
  0.310
  0.320
  0.320
  0.330
  0.330
  0.340
  0.340
  0.350
Adjusted equity ratio
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688
  0.688

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  937
  964
  994
  1,028
  1,066
  1,107
  1,152
  1,200
  1,252
  1,308
  1,654
  1,718
  1,786
  1,858
  1,935
  2,016
  2,102
  2,193
  2,289
  2,390
  2,497
  2,610
  2,729
  2,854
  2,986
  3,124
  3,271
  3,424
  3,586
  3,756
Depreciation, amort., depletion, $m
  498
  501
  503
  507
  510
  514
  518
  523
  527
  533
  146
  152
  158
  165
  172
  180
  188
  196
  205
  214
  224
  235
  246
  257
  270
  283
  296
  310
  326
  341
Funds from operations, $m
  1,436
  1,465
  1,498
  1,535
  1,576
  1,621
  1,670
  1,723
  1,780
  1,841
  1,800
  1,870
  1,944
  2,023
  2,107
  2,196
  2,289
  2,389
  2,494
  2,604
  2,721
  2,844
  2,974
  3,111
  3,255
  3,407
  3,567
  3,735
  3,912
  4,098
Change in working capital, $m
  9
  11
  12
  14
  15
  16
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
Cash from operations, $m
  1,427
  1,454
  1,486
  1,521
  1,561
  1,604
  1,652
  1,703
  1,759
  1,818
  1,776
  1,844
  1,917
  1,994
  2,076
  2,163
  2,255
  2,352
  2,455
  2,564
  2,678
  2,799
  2,927
  3,061
  3,202
  3,351
  3,508
  3,673
  3,847
  4,029
Maintenance CAPEX, $m
  -104
  -106
  -109
  -111
  -114
  -118
  -122
  -126
  -130
  -135
  -140
  -146
  -152
  -158
  -165
  -172
  -180
  -188
  -196
  -205
  -214
  -224
  -235
  -246
  -257
  -270
  -283
  -296
  -310
  -326
New CAPEX, $m
  -59
  -73
  -84
  -94
  -104
  -114
  -124
  -135
  -145
  -156
  -167
  -178
  -189
  -201
  -213
  -226
  -239
  -253
  -268
  -282
  -298
  -314
  -331
  -349
  -368
  -387
  -407
  -429
  -451
  -474
Cash from investing activities, $m
  -163
  -179
  -193
  -205
  -218
  -232
  -246
  -261
  -275
  -291
  -307
  -324
  -341
  -359
  -378
  -398
  -419
  -441
  -464
  -487
  -512
  -538
  -566
  -595
  -625
  -657
  -690
  -725
  -761
  -800
Free cash flow, $m
  1,264
  1,275
  1,293
  1,316
  1,342
  1,372
  1,406
  1,443
  1,483
  1,527
  1,469
  1,521
  1,576
  1,635
  1,698
  1,765
  1,836
  1,912
  1,992
  2,076
  2,166
  2,261
  2,361
  2,466
  2,577
  2,695
  2,818
  2,948
  3,085
  3,229
Issuance/(repayment) of debt, $m
  51
  60
  68
  77
  85
  93
  101
  110
  118
  127
  136
  145
  154
  164
  174
  184
  195
  206
  218
  230
  243
  256
  270
  284
  299
  315
  332
  349
  367
  386
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  51
  60
  68
  77
  85
  93
  101
  110
  118
  127
  136
  145
  154
  164
  174
  184
  195
  206
  218
  230
  243
  256
  270
  284
  299
  315
  332
  349
  367
  386
Total cash flow (excl. dividends), $m
  1,314
  1,334
  1,362
  1,392
  1,427
  1,465
  1,507
  1,552
  1,601
  1,654
  1,605
  1,665
  1,730
  1,799
  1,872
  1,949
  2,031
  2,118
  2,209
  2,306
  2,409
  2,517
  2,630
  2,750
  2,877
  3,010
  3,150
  3,297
  3,452
  3,616
Retained Cash Flow (-), $m
  -115
  -131
  -150
  -169
  -187
  -205
  -223
  -242
  -260
  -280
  -299
  -319
  -340
  -361
  -383
  -406
  -430
  -455
  -480
  -507
  -535
  -564
  -595
  -627
  -660
  -695
  -731
  -770
  -810
  -852
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  1,199
  1,203
  1,211
  1,224
  1,240
  1,260
  1,283
  1,310
  1,341
  1,375
  1,306
  1,346
  1,390
  1,437
  1,488
  1,543
  1,601
  1,663
  1,729
  1,799
  1,874
  1,952
  2,036
  2,124
  2,217
  2,315
  2,418
  2,528
  2,643
  2,764
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  1,150
  1,101
  1,054
  1,008
  961
  914
  867
  819
  770
  721
  620
  574
  529
  483
  437
  392
  348
  306
  266
  229
  194
  162
  133
  108
  86
  68
  52
  39
  29
  21
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Hormel Foods Corporation is engaged in the production of a range of meat and food products. The Company operates through four segments: Grocery Products, which is engaged in the processing, marketing and sale of shelf-stable food products sold for the retail market and health and also consists of nutrition products, including Muscle Milk protein products.; Refrigerated Foods, which consists of the processing, marketing and sale of branded and unbranded pork, beef, chicken and turkey products for retail, foodservice and fresh product customers; Jennie-O Turkey Store (JOTS), which consists of the processing, marketing and sale of branded and unbranded turkey products for retail, foodservice and fresh product customers; and International & Other, which includes Hormel Foods International Corporation, which manufactures, markets and sells the Company products internationally.

FINANCIAL RATIOS  of  Hormel Foods Corporation (HRL)

Valuation Ratios
P/E Ratio 25.9
Price to Sales 2.4
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 21.7
Price to Free Cash Flow 27.8
Growth Rates
Sales Growth Rate -3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.7%
Cap. Spend. - 3 Yr. Gr. Rate 6.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 5.1%
Total Debt to Equity 5.1%
Interest Coverage 99
Management Effectiveness
Return On Assets 12.8%
Ret/ On Assets - 3 Yr. Avg. 13.1%
Return On Total Capital 17.1%
Ret/ On T. Cap. - 3 Yr. Avg. 17.7%
Return On Equity 18.1%
Return On Equity - 3 Yr. Avg. 19.1%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 21.8%
Gross Margin - 3 Yr. Avg. 21.3%
EBITDA Margin 15.5%
EBITDA Margin - 3 Yr. Avg. 14.6%
Operating Margin 14%
Oper. Margin - 3 Yr. Avg. 13.1%
Pre-Tax Margin 14%
Pre-Tax Margin - 3 Yr. Avg. 13.1%
Net Profit Margin 9.2%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate 33.8%
Eff/ Tax Rate - 3 Yr. Avg. 33.7%
Payout Ratio 40.9%

HRL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HRL stock intrinsic value calculation we used $9546 million for the last fiscal year's total revenue generated by Hormel Foods Corporation. The default revenue input number comes from 0001 income statement of Hormel Foods Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HRL stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HRL is calculated based on our internal credit rating of Hormel Foods Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Hormel Foods Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HRL stock the variable cost ratio is equal to 86.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HRL stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.1% for Hormel Foods Corporation.

Corporate tax rate of 27% is the nominal tax rate for Hormel Foods Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HRL stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HRL are equal to 32.7%.

Life of production assets of 30.2 years is the average useful life of capital assets used in Hormel Foods Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HRL is equal to 4.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5600.811 million for Hormel Foods Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 535.714 million for Hormel Foods Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Hormel Foods Corporation at the current share price and the inputted number of shares is $22.2 billion.

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