Deutsche Bank: Wait For Better Entry Point Into Hormel

Deutsche Bank issued a company update on Hormel Foods Corp (NYSE: HRL), advising investors to wait for a better entry point to buy stock in the food company. Deutsche Bank downgraded Hormel Foods from Buy to Hold and maintained their $76 price target.

Mario Contreras and Eric Katzman, analysts at Deutsche Bank, wrote, "While we continue to view Hormel's fundamentals as favorable, particularly in comparison with the broader packaged food industry, valuation is becoming increasingly difficult to justify [...] we believe Hormel is positioned to benefit from strong fundamentals and strategy, but we see limited upside for the stock at the current level and wait for a better entry point."

Related Link: Hormel Foods In Break-Out Mode

Deutsche Bank sees several factors that could increase Hormel's earnings, including grocery products momentum, manufacturing cost savings and future acquisitions. While Hormel's downgrade is primarily due to valuation (currently trading at a 20 percent premium to their peer group), Deutsche Bank continues to see the company's fundamentals such as a strong track record of product innovation and an experienced management team as positive going forward.

Two Risks

Deutsche Bank did highlight two main risks for Hormel: Avian Flu risk and the Diamond Crystal Divestiture. Analysts believe that the risk of the flu outbreak could translate into a $0.13/share earnings headwind, while the divestiture is estimated to be $0.03/share dilutive and poses a risk to earnings. However, the analysts believe the stock's upside due to a potential increase in grocery products margin and continued pursuit of strategic M&A transactions could provide support for the company going forward.

Currently, Hormel Foods is trading at $76.96, down 0.62 percent.

Image Credit: "Hormel Austin." Licensed under Attribution via Wikimedia Commons.