Hormel Foods (HRL) Stock Analysis: Undervalued & Poised for a Major Turnaround - Dec 07, 2025

1. Recommendation

BUY

2. Investment Thesis & Differentiated View

Hormel Foods (HRL) is poised for a significant turnaround following a challenging FY2025. Despite recent operational setbacks and commodity inflation, aggressive management actions, including the "Transform and Modernize" (T&M) initiative and refreshed leadership, are expected to drive substantial cost savings and operational efficiencies. We anticipate an adjusted EPS outlook for FY2026 that will exceed current consensus estimates, suggesting the market currently undervalues its recovery potential.

Our differentiated view is that despite acknowledged execution risks and market skepticism, Hormel's current valuation fundamentally undervalues its long-term turnaround potential. The market appears overly focused on short-term operational mishaps and persistent commodity volatility, which are now showing signs of abating. Internal strategic improvements, including aggressive cost-cutting and digital transformation, combined with external tailwinds in key commodity markets, create a compelling upside scenario. The significant discount of HRL's current NTM P/E ratio to its 3-year historical average offers an attractive entry point, anticipating a justified multiple re-rating as operational improvements materialize.

3. Key Bull Case Points

• Transform & Modernize Initiative Driving Profitability: The T&M initiative is a significant catalyst, projected to deliver $100-$150 million in operating income benefits in FY2025, and over $250 million by FY2026. This, coupled with corporate restructuring (250 job cuts), provides a clear path to margin expansion and EPS growth.
• Commodity Headwinds Abating & Key Brand Recovery: Anticipated declines in pork input costs (H2 FY2026) will alleviate margin pressures. The Planters snack nuts business is on track for recovery from production disruptions, with full production expected in early Q1 FY2026, removing a significant drag on Retail segment performance.
• Undervalued with Strong Dividend Track Record: The stock trades at a notable discount to its 3-year historical average NTM P/E (15.89x vs. 19.60x mean) and boasts a "Dividend King" status with 60 consecutive years of increases, indicating financial stability and a commitment to shareholder returns even during challenging periods.

4. Key Bear Case / Risks

• Persistent Commodity Price Volatility and Supply Constraints: While pork costs are expected to decline, beef and nut costs are anticipated to remain elevated through FY2026. Moreover, turkey supply constraints due to avian influenza are expected to persist, impacting the Jennie-O segment's profitability and volume.
• Execution Risk of Turnaround Strategy: The success of the "Transform and Modernize" initiative, portfolio reshaping, and digital transformation relies heavily on effective execution. Any missteps could delay the recovery and further erode investor confidence.
• Continued Weak Consumer Demand: A prolonged weak consumer environment, characterized by value-seeking behavior and pressure on disposable income, could limit Hormel's ability to implement necessary pricing actions and drive volume growth, despite cost-cutting efforts.

5. Valuation & Upside Potential

Hormel Foods appears to be undervalued relative to its own 3-year historical trading multiples.

• NTM P/E: Current 15.89x is significantly below its 3-year mean of 19.60x, representing the lower ~15% of its historical range.
• NTM Price/Book Value: Current 1.52x is near its 3-year minimum (1.41x), positioning it at only 6.3% through its historical range.
• NTM EV/EBIT: Current 13.84x is well below its 3-year mean of 16.38x, placing it at ~17% through its historical range.
• NTM FCF Yield: Current 6.13% is robust and high within its 3-year range (69.5%), indicating strong cash flow generation relative to its enterprise value.

6. What to Watch (Thesis Trackers & Catalysts)

Thesis Trackers:

• Gross & Operating Margin Trends: Monitor quarterly reports for sustained improvements in gross and operating margins, which will indicate the effectiveness of T&M initiatives and commodity cost management.
• Organic Net Sales Growth & Volume: Pay close attention to organic net sales growth, particularly volume trends, in the Retail and Foodservice segments, as this will signal consumer response and successful market penetration.
• Commodity Price Updates: Track management commentary and market data on pork, beef, nut, and turkey prices for favorable shifts that can further boost profitability.

Potential Catalysts:

• Upward Revisions to FY2026/FY2027 Guidance: Stronger-than-expected execution of cost-cutting and portfolio optimization, or a more rapid improvement in the consumer environment, could lead to management raising future earnings guidance, driving significant stock appreciation.
• Positive Developments in International Segment: Continued recovery and robust growth in the International segment, particularly in China and Indonesia, alongside a turnaround in Brazil, could unlock higher-margin revenue streams and provide an additional growth narrative.