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January 4, 2013

Hormel: 5 Forward-Looking Factors and a Surprise


We’ll try not to rehash the market excitement about Hormel’s (HRL.N) $700 million acquisition of the Skippy peanut butter brand from Unilever NV (UN.N).  So far, companies aspire to make the type of purchase which is accretive to both revenues and earnings in the first year, and which may also smooth out earnings moving forward.  Hormel’s management has delivered market outperformance over time, and their largest acquisition ever seems to fit their goals, from adding to branded products to international expansion including China, where their other products may be cross-marketed.

While many look at trailing 12-month data, StarMine also shows how the data looks based on aggregate analyst forward projections.  Four forward 12-month ratios of Enterprise Value/Sales, Enterprise Value/ EBITDA, Price/Earnings and Price/Book are all within 11% of their 10-year high values, in the table below.

20130104 HRL Table

The fifth ratio, the forward 12-month Price/Cash Flow, currently shows a value of 15.8x and exceeds the recent new high of 14.6x (see chart).  

20130104 HRL chart

Without the Skippy acquisition, one would be cautious about such levels.  But Hormel’s management seems to have at least a recent history of minimizing downside earnings surprises and delivering more upside surprises, as shown by the “Surprise %” shown in this StarMine table:

20130104 HRL Table 2

Also the bottom rows showing “Standardized Unexpected Earnings” ([actual minus consensus]/standard deviation of estimates on report date) and “Post-Report 30 Day Price Change” are an indication of upside surprises being of a greater magnitude than downside surprises.


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