Hormel Foods: A Hidden Gem in the Protein Market

Hormel Foods (NYSE:HRL) has long been a steady performer in the protein and packaged foods sector, but recent developments suggest it could be undervalued and primed for growth. With a P/E ratio of 22.68 and an EV/EBITDA multiple of 14.60—both below their historical averages—alongside operational improvements and a bullish initiation from Goldman Sachs, the stock presents a compelling investment opportunity.

Valuation: Undervalued by Historical Standards

Hormel's current valuation multiples are notably lower than their five-year averages. Its P/E ratio of 22.68 is below the 25.83 five-year average, while its EV/EBITDA of 14.60 is under its 10-year median of 16.07. . While Hormel's EV/EBITDA is higher than the industry median of 10.11, this reflects its stronger financial profile compared to smaller competitors. Analysts argue that the stock is underappreciated, particularly given its stable cash flows and dividend history.

Goldman Sachs recently noted Hormel's valuation as “attractive” at 12.3x next-twelve-months EV/EBITDA, significantly below its historical averages of 13.0x (one-year), 14.6x (three-year), and 15.8x (five-year). This suggests the stock could rise to align with its historical norms, offering a potential 15% upside to Goldman's $35 price target.

Operational Turnaround: Planters Recovery and Turkey Stabilization

Hormel's recent performance highlights a turnaround in key segments. The Planters nut business, which had struggled with distribution issues, has returned to full availability, driving sales growth. Meanwhile, turkey supply dynamics are stabilizing: Hormel reduced turkey production capacity by 30% to manage commodity costs and align with demand. This adjustment has positioned the company to benefit from lean turkey trends, as seen in the strong performance of Jennie-O lean ground turkey.

In Q2 2025, Hormel reported a 1% organic net sales increase, driven by premium segments like Applegate (a 30%+ grower) and Mexican foods (e.g., Herdez Salsa and refrigerated guacamole). . While revenue slightly missed estimates, management reaffirmed full-year guidance of 2–3% net sales growth and $1.58–$1.68 EPS.

Cost-saving initiatives are also bearing fruit. SG&A expenses fell 50 basis points in Q2, and operational efficiency programs are targeting further margin improvements. These efforts, combined with a 30% reduction in turkey capacity, have insulated Hormel from commodity volatility better than peers like Pilgrim's Pride (NASDAQ:PPC).

Dividend Resilience and Financial Health

Hormel's dividend yield of 3.76% is a key attraction. The company has raised its dividend for 59 consecutive years, a streak unmatched by most peers. . Its financial health is rated “GREAT” with a score of 3.37, reflecting strong liquidity and a net debt-to-EBITDA ratio at the low end of its target range. This stability allows Hormel to reinvest in growth while maintaining payouts.

Catalysts for Upside: Analysts' Bullish Call and Underrated Growth

Goldman Sachs' Buy rating and $35 price target (implying a 15% upside from current levels) hinge on two factors:
1. Market Underestimation of Growth: Analysts believe consensus estimates for 2026 are too conservative. Hormel's premium brands and cost discipline position it to outperform, especially as turkey supply constraints support pricing.
2. Dividend Attractiveness: The 3.76% yield, paired with steady cash flows, makes Hormel a rare “bond proxy” in an era of volatile markets.

While the consensus rating is “Moderate Buy” with an average target of $32.78, GuruFocus estimates a 12% upside to $34.58. Institutional ownership at 40.99% suggests professional investors are already taking notice.

Risks to Consider

• Commodity Costs: Rising grain prices could pressure margins, though Hormel's capacity reductions and lean protein focus mitigate this.
• Supply Chain Disruptions: Bird flu outbreaks or labor shortages could impact turkey operations, though Hormel's vertical integration reduces risk.
• Consumer Sentiment: A slowdown in premium food demand could hurt segments like Applegate.

Conclusion: A Buy at Current Levels

Hormel Foods combines undervaluation, operational turnaround, and dividend resilience into a compelling package. With Goldman Sachs' bullish call and a valuation below historical averages, the stock offers asymmetric upside. Investors seeking stability and growth in the protein sector should consider adding Hormel at current prices.

In a market hungry for reliable returns, Hormel's blend of defensive income and growth catalysts makes it a standout choice.