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business newsHormel Foods Set to Plump Up?
By
Justin Sharon
Nov 22, 2010 4:35 pm
Shares of the company hit an all time high today after being initiated at a bullish Outperform by analysts at BMO Capital.
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The firm produces all kinds of frozen, cured, smoked, and canned edibles but is most famous for what wags call “Something Posing As Meat,” aka Spam, a pork shoulder product made famous by TV personality Palin (Monty Python‘s Michael, not Alaska‘s Sarah). That was four decades ago now but the mystery meat has recently enjoyed renewed attention as an unlikely menu item aboard a luxury cruise. (Or not, as the case may be.)
Consensus per share estimates for its fourth quarter, out before the bell, call for $0.79 on $1.87 billion in revenue, up from year-ago figures of $0.77 and $1.68 billion, respectively. Shares are up more than 20% in 2010 and Hormel can claim to have raised its dividend, currently yielding almost 2%, for 44 years in a row.
The duct tape craze may have died down but this is an outfit that has undeniably prospered from panic room-alarmists hunkering down with bunker foods while awaiting the next attack, stocking up on shares of an operation founded in 1891 and whose offerings can likely still be eaten 119 years from now. (Of course, if Armageddon really is at hand, investors had better cash in those gains pretty soon.)
For its most recent quarter, Hormel reported an impressive 9.9% increase in sales, mainly due to being able to raise prices a hefty 8%. Its Dinty Moore segment has also showed strength as consumers continue gravitating toward relatively affordable fare in tough times. They also enjoy a solid financial footing, with debt representing only 17% or so of capital.
Reasons for caution? It's worth pointing out, especially this week, that feed grain prices are about 75% of the total cost of raising turkeys. As a result, their Jennie-O Turkey division is especially susceptible to any upturn in commodity costs such as we have witnessed recently.
Please see Urban Legends: Spam Tastes Like Human Flesh! and Costco Sells End-of-Time Food.
This week may be notoriously bad for weight gain but the days immediately around Thanksgiving, traditionally never the most kind in equities, are proving pretty good for food stocks this time around. Cracker Barrel Old Country Store (CBRL) is certainly enjoying a new lease on life, up sharply at a fresh 52-week peak as we speak to take its 2010 gain to well over 60%.
The company, whose roughly 600 outlets combine comfort food and gift shops, is clearly managing to keep customers coming back, even those who might otherwise take offense to having their burgers garnished with razor blades. Fiscal fourth-quarter earnings per share are expected to come in at $0.91 tomorrow, up from only $0.78 a year ago at the Tennessee firm founded in 1969. (The same year its former Senator Al Gore invented the Internet; the state’s residents evidently weren’t fiddling around back then.)
In its most recent reporting period, Cracker Barrel posted EPS of $1.12 to beat the Street and sales were positive in all 10 of its regions. Analysts also have high hopes for its “Serve to Eat” initiative, which will be rolled out by April of 2011. CEO Michael Woodhouse announced a management shake up earlier in November, so analysts will be keeping a watchful eye on potential succession plans.
Click on Name Games: IHOP vs. IHOP to learn about a key Cracker Barrel competitor.
Poor Europe can’t catch a break. With its sovereign debt dominoes a droppin’ again, now comes news the continent’s richest man is loosing his shirt. And he isn’t even European. India’s Lakshmi Mittal, who lives in London, is seeing his Arcelor Mittal (MT) slide more than 3% as I write.
The world’s biggest steelmaker was reduced by UBS researchers to Neutral from Buy this morning and has now tumbled more than 12% in as many months. This on top of last week’s downgrade from Citigroup analyst Anindya Mohinta, who cut the commodity company to Hold from Buy, citing Arcelor’s high leverage to areas of the world that are suffering the double whammy of high flat-rolled inventories and weak demand, including Brazil and the perpetually imploding periphery of Southern Europe. Mohinta forecasts they will “sharply lower utilization” in these geographies, and his downbeat assessment comes not long after Goldman Sachs reduced its own estimates on US Steel (X).
Arcelor has admittedly demonstrated an enviable track record of vertical integration, and is better placed than many competitors for an eventual industry upturn, so what looks like kryptonite currently could eventually morph into the Man of Steel once more. Today however, it’s hard to see the glass as anything other than half empty.
Also check out Billionaires Behaving Badly: Lakshmi Mittal and Hyman Roth ETFs to Consider for Steel M&A Rumors.
With the NFC East's Philadelphia Eagles following the Mafia into wind power, there’s clearly a new breeze blowing in alternative energy. Stock in 4-year-old China Ming Yang Wind Power Group (MY) was up sharply earlier today, only to see its gains gone with the wind in an afternoon swoon, thus aptly demonstrating the volatility inherent in the sector.
The October IPO now trades well below its initial price of $14, and when Denmark’s Vestas Wind Systems Aktieselskabet (VWSYF), the world’s biggest turbine producer, slides more than 7% to close at a multi-year low in Copenhagen on a weaker-than-expected full-year forecast, this is certainly not a sector for faint of heart upstarts.
First Wind Holdings Inc. scrapped its plans to go public only last month, and engineers still struggle to confront the age-old conundrum whereby the windiest places are invariably the least populated. (The world’s most ferocious gales blow out of Antarctica.) Progress is undoubtedly being made, and China Ming recently reported a 543% increase in revenue to $222.1 million, but these shares are strictly for those with a strong stomach for risk.
Turn to Four Ways to Play China’s Energy Stance, Quick Hits: Harnessing the Power of the Breeze, and Big Oil Blows Wind Power Out of the Water for more.
No positions in stocks mentioned.
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