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Mon. Jul 22nd, 2024

A potential purchase despite the post-earnings decline

By Vaseline May31,2024
A potential purchase despite the post-earnings decline

Hormel billboard sign

Hormel Foods Corporation (NYSE: HRL) Stock investors live by the expression that what goes up must come down. HRL shares fell 8.8% in afternoon trading after the company posted mixed gains. This move is almost the exact opposite of HRL stock’s price movement following the company’s previous earnings report in February 2023, when the stock rose sharply.

Investors have seen much of their 2024 gains wiped out and may be wondering what to do with Hormel shares, which are down 11% in the past twelve months. The answer may be: stay the course. This sharp price move could be a technology-induced overreaction to a report that wasn’t as bad as it seems.

Hormel’s Earnings: Slight decline but exceeds expectations

Hormel’s revenue of $2.89 billion fell short of analyst expectations of $2.97 billion, the same number the company reported last year. The company continues to show uneven performance across its multiple categories and brands.

For example, the company reported volume growth in its foodservice business, but noted that these gains were offset by weakness in its international and retail businesses. The same was true for brands such as Skippy, Spam, Planter’s and Hormel Black Label bacon, which saw increases in net sales offset by declines in other areas.

The bottom line, however, tells a different story. Although earnings fell by two cents per share year over year, they exceeded analyst expectations by two cents per share. That means two consecutive quarters of better-than-expected earnings and higher operating cash flows.

When it came to guidance, Hormel also had some positive news to report. The company reaffirmed its outlook for net sales growth between 1% and 3%. The company also revised its expectations for diluted net earnings per share (EPS) to $1.45 to $1.55 (from $1.43 to $1.57). Additionally, it raised its expectations for adjusted diluted earnings per share to a range between $1.55 and $1.65 (from $1.51 to $1.65).

Is High-Frequency Trading the Cause of Hormel’s Stock Volatility?

Investors are seeing price action like you see with HML stock all the time. Stocks move this way due to high-frequency trading (HFT), which is guided by algorithms that search for keywords in a company’s earnings report and can execute buy and sell orders at lightning speed.

That seems to be part of what happens to Hormel stock after the earnings report. Analysts have been bearish on Hormel for a while. Hormel analyst ratings on MarketBeat give the stock a consensus rating of Reduce, which equates to Sell.

The bottom line is that investors don’t need a lot of bad news to confirm this negative sentiment.

Hormel Stock Chart

Why Hormel’s high-yield dividend makes it a solid buy

Many of the issues surrounding Hormel are common to many consumer staples stocks. This also means that they are likely to be temporary and could change as economic conditions improve. That doesn’t mean there won’t be more downside risk for the stock in the near term. However, you should keep in mind that many consumers are choosing to eat at home, and Hormel’s high-protein offering could help push the dollar even further.

Even if growth is slow, one of the attractive aspects of HRL stock is its high-yield dividend. Hormel is a dividend king that has increased its dividend for 59 years in a row and has a yield of 3.58%. Despite the headwinds, there is no reason to believe the dividend is in danger.

Source MarketBeat

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