Hormel Foods Corporation (HRL)

Conclusion

Hormel Foods Corporation is a US packaged-food company that makes and sells meat, nut and other food products through its Retail, Foodservice and International segments. At 22.26 USD on 9 November 2026, its market capitalisation is 12.3 billion USD and its enterprise value is 14.2 billion USD.

The verdict is undervalued. Four of the five multiples trade below their own ten-year medians: EV/EBITDA is 16.32 against a median of 16.45, P/FCF 15.69 against 26.67, P/S 1.01 against 2.11 and P/B 1.56 against 3.80. The P/E of 35.75 sits 45.7% above its median of 24.54. The fair value band runs from 25.12 to 37.69 USD with a midpoint of 31.40 USD, a margin of safety of 41.1%. The DCF gives 24.97 USD per share at a discount rate of 8.9%, and the fair value from historical multiples is 37.84 USD. The reverse DCF implies growth of 2.66% a year, against revenue growth of 4.73% a year over five years, while free cash flow per share has fallen at a rate of -6.95% a year over the same period.

What supports the case is the cash generation behind earnings: free cash flow conversion over five years is 99.1%, the Altman Z-score is 3.35 and the Beneish M-score of -2.56 is well below the manipulation threshold. What would break it is returns and earnings. ROIC of 4.4% sits below WACC of 7.9%, the operating margin of 4.7% compares with a ten-year median of 11.0%, and EPS has fallen at -12.2% a year over five years.

Financial health

Financial health is green, held up by a current ratio of 1.88 and an Altman Z-score of 3.35, and pulled down only mildly by net debt to EBITDA of 2.28 and interest coverage of 7.62, both rated neutral. The quick ratio is 0.85 and debt to equity is 0.36. The Altman Z-score of 3.35 lies in the safe zone, and Hormel is a manufacturer, the kind of business the model was built for. Insolvency risk is low, about 0.25% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is green. Free cash flow conversion is 227.9% on a trailing twelve-month basis and 99.1% over five years, and the accrual ratio of -2.7% shows cash earnings running ahead of reported profit. Stock-based compensation is 0.21% of revenue, and free cash flow after it is 755.4 million USD. The five-year share count CAGR of 0.14% shows no net buybacks. The Piotroski score is 5 of 9, and the Beneish M-score of -2.56 reads as unlikely to be manipulated. Hormel beat earnings estimates in five of the last eight quarters, with an average surprise of 1.6%. Estimates for the current year were cut by 0.64% over 90 days, while next-year estimates rose 0.49%.

Profitability

Profitability is red. Gross margin is 15.7% against a ten-year median of 18.2%, operating margin is 4.7% against 11.0%, and net margin is 2.8% against 8.6%. ROIC of 4.4% sits below WACC of 7.9%, a gap the model labels as value-destroying, with a ROIC minus WACC value of -3.48%. Return on equity is 4.4%. The DuPont split shows a net margin of 3.95%, asset turnover of 0.90 and an equity multiplier of 1.70, so leverage is not inflating the return. Five-year median ROIC was 7.97%, so current returns are well below that history.

Growth

Growth is red. Revenue grew at a CAGR of -0.95% over three years, 4.73% over five and 2.71% over ten, and revenue rose in six of the ten comparable years. EPS fell at -21.84% a year over three years, -12.16% over five and -3.71% over ten. Free cash flow per share fell at -14.63% over three years. Consensus expects next-year EPS growth of 5.61%, a recovery that has not yet appeared in the reported figures.

Valuation

Valuation is green. Four of five multiples sit below their ten-year medians: EV/EBITDA at -0.8%, P/FCF at -41.2%, P/S at -52.2% and P/B at -58.9%. P/E is 45.7% above its median. The DCF gives 24.97 USD per share at a discount rate of 8.9%, with 55.9% of the value in the terminal value. The fair value band of 25.12 to 37.69 USD is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The reverse DCF implies growth of 2.66%, against five-year revenue growth of 4.73% and five-year FCF per share growth of -6.95%. The dividend yield is 5.23% and the payout on free cash flow is 82.1%.

Risks

The main risk is that returns stay below the cost of capital. ROIC of 4.4% against WACC of 7.9% means each new dollar invested currently earns less than it costs, which would keep the valuation discount in place. The falling operating margin, at 4.7% against a median of 11.0%, adds to that pressure, and a continued EPS decline would undermine the case that the stock is cheap against its earnings history. Net debt to EBITDA of 2.28 limits flexibility if earnings fall further. The DCF depends heavily on the terminal value, which accounts for 55.9% of it. This analysis does not include a debt maturity schedule or revenue by segment, so refinancing risk and the performance of the Retail, Foodservice and International segments cannot be assessed here.