Shares of Hormel Foods (HRL +0.95%) are down around 40% from their 2022 high-water mark. But the stock rocketed higher by around 15% after the company reported its fiscal 2024 first-quarter earnings results on Feb. 29. Is this the sign that it's time to buy or should investors sell on what appears to have been good news?
Here's a quick look at the buy, sell, hold logic with Hormel.
Hormel's problems are real
There's no way to sugarcoat it, Hormel has been dealing with very real headwinds. There are some issues that are being experienced across the consumer staples sector, like rising input costs and increasing labor expenses. But there are also company-specific problems that have to be considered.
For example, avian flu has been a particular headwind because of Hormel's turkey business. Meanwhile, the company's acquisition of the Planters brand came just as nuts started to fall out of favor with consumers. And then there's the not-so-subtle fact that Hormel hasn't been as successful as peers at passing on its rising costs to consumers.
Image source: Getty Images.
In other words, there are some very good reasons why Hormel's stock has performed so badly since 2022. However, the stock's decline has pushed this Dividend King's yield up toward historic highs at around 3.3%. While there are problems today, no business goes up or down in a straight line. A sine curve is the norm and Hormel looks like it is in a business trough right now.
History suggests it will eventually emerge from these doldrums since no company achieves Dividend King status by accident. The first signs of strength actually arrived with fiscal first-quarter 2024 earnings. Notably, volume rose 4%, after being down in 2023. Every segment saw year-over-year volume growth in the fiscal first quarter of 2024, suggesting broad-based strength.
In other words, this could be an important inflection point, signaling that customers are finally ready to accept the higher prices Hormel has pushed through.
Buy Hormel
For investors who think in decades and not days, Hormel looks more attractive today than it has in a long time. With the business finally starting to show progress toward an upturn, this could be the time to get in before Wall Street rewards the stock for the directional change in the business' performance. The quick jump in the price after earnings were reported could be just the start.
On that score, it is worth noting that Hormel owns some of the most iconic food brands in the world, including recently acquired Planters and Spam, among others. Given the long history of success here, highlighted by the company's status as a Dividend King, it seems likely that management will eventually get the company back on an upward track.
So even though one quarter doesn't make a trend, it is enough to show that management's efforts are producing positive results. Sooner or later an uptrend will become apparent and Wall Street will respond accordingly.
Hold Hormel
If you have owned Hormel through the stock price decline, it seems like selling now would be locking in losses at the worst possible time. Assuming that the good news generally continues, a stock price recovery is likely. Note that the dividend was increased nearly 3% in January 2024. While that's a slowdown from the 10% or more trailing rate over the past decade, it shows that the company is still very focused on ensuring it rewards investors for sticking around.
And if the company can get back on track, dividend growth will likely pick up again, too. It would be short-sighted to sell now just as things appear to be turning for the better.
NYSE: HRL
Key Data Points
Sell Hormel
There are a few reasons to consider selling Hormel. The first is if you are looking to capture the capital losses you have in the stock to offset gains elsewhere. That's a portfolio-level decision, but one that might make sense for some investors.
The second reason to sell Hormel is if you bought it at a lower point than it is currently selling at and you want to lock in some quick gains. That basically means you bought right before the fiscal 2024 first-quarter earnings release, so this probably won't be a lot of investors.
The third reason to sell Hormel is if you believe management has simply lost its way. The upturn in performance would seemingly refute that belief, but, again, one quarter doesn't make a trend. And for a couple of years now the trends have been pretty bad.
Sticking it out with a Dividend King
Every company goes through hard times at some point. If a company exists for long enough, like Hormel, it will likely go through multiple periods where it struggles. The question for investors is whether or not a company can muddle through the hard times and get back to strong performance.
This Dividend King has proven before that it can do just that and the first-quarter business upturn hints that it is doing it again. Most investors will probably either want to buy now, as the upturn begins, or hold on to benefit from the improvements that are taking shape.
