Hormel: Shares Plunge on Disappointing Long-Term Profit Outlook Presented at Investor Day

Narrow-moat Hormel’s investor day disappointed us by offering a three-year plan that highlighted a long-term operating income growth target of 5%-7% per year through fiscal 2026, much of which will come through cost-optimization efforts with a yet-to-be-announced price tag. In contrast, we had expected operating income to grow at a midteen rate over that period, largely representing a recovery of margins to prepandemic levels. Thus, we expect to lower our fair value estimate of $37 per share by a low-double-digit percentage, roughly in line with the stock’s 10% drop. Prior to today's event and market reaction, we had thought shares were roughly fairly valued, and expect that will remain the case after our valuation revision.