Hormel Foods Analysis
Hormel Foods is a big food processing company which has over the years grown into an iconic company in the food industry. The company mainly deals in meat products such as turkey and chicken. The company usually engages in products in the meat industry where it controls a high part of the market in the industry. The company has grown to be a business hub worth admiration. It deals with many types of products which are all in the food industry. The company is divided into five main business models. The main products are Refrigerated Foods, Turkey store, Speciality foods and international products. Some of their products are Hormel Chilli, SPAM, Wholly Guacamole, Hormel Black Label Bacon, Hormel Party trays, Skippy peanut batter, Jennie-O turkey products, Lloyd's barbecue products.
Over the years, 6the company has acquired some other enterprise to build up their business. One such move was made in 2015 when it purchased the Applegate Farms. This moves the company receive a very high growth brand in the sector that involves natural and organic products. Apparently, at the time, the Applegate company was the largest brand in the natural and also the organic meats sector. In the years 2016, the company has made loads of revenue from poultry and perishable items. Almost two-thirds of their revenue got generated from the items.
The company has some aspects bearing in mind that it is a huge company. One of the main strengths the company has is that it is endowed with a high level of management expertise which has enabled it to maintain a high level of competence while it also maintains a food balance sheet., The company has continued to maintain a good expertise by maintaining more and more acquisitions. One of their big acquisitions is that one of the Applegate company. This has enabled the company to maintain a good brand name. This is because it has well maintained the other companies that it has acquired.
Another strength of the company is that there has been a constant increase in the demand for protein foods. Hormel is on the right side of this trend. As the world continues to grow, more and more people continue to appreciate the culture of eating meat products. There has been a huge growth in the number of people taking protein products. Apparently, there has also been the incorporation of proteins into other foods which do not require proteins (Townsend Consulting 67). Additionally, the companies are a huge company. In that sense, it has economies of scale. The company controls a huge part of the American market. In so doing, it purchases products in bulk which enables it to sale the products at a lower price since it enjoys economies of scale. This enables it to buy and sale at an advantage compared to its competitors.
The Hormel foods company has most of its products in an area where there is a high level of competition. This makes the company spend so many resources in the process of marketing the product. In such a situation, a company cannot claim to fully control the product market. In light of that, they have to spend so many efforts in trying to ensure that they completely sell the products. One of the major forms of competition in a highly competitive market is reducing the prices of the products completely. In so doing., Companies compete at a higher level with their competitors Lower prices are a good and the most effective way to compete with competitors in a highly populated market. As such, the Hormel company has to forego a huge profit merging so that it can keep up with most competitors in the market while it tries to make a competitive survival in the said market (Louderback 57). The Hormel foods company has not invested a lot of money in the field of research. There are some areas in which the company can invest in such as the marketing field.
The Hormel company ought to compete with other companies in the way they market their products. However, they have maintained the old forms of competition over time without looking for new means of production.The company's lack of investment in the research area causes the company not to have a good edge over other companies. This is a major weakness for the company in question. The company has maintained a high level of production sand sales over the years even as it is seen in their 2017 financial report. However, they have not had a good level of growth over the years. Their overall economic growth has been at an alarming low. This situation makes a very dangerous situation for the company where it risks losing all of its market shares (Townsend 37). Apparently, the company could even lose business if there comes another company with a dynamic shift in its methods of operations. As such, it is important that the company maintains a high level of dynamism to ensure that it maintains a high market share no matter the fact that it already has a huge market share. This will also enable the company to grow economically in a very short period.
Harlem has of late been improving its operations in international communities. It is going beyond its normal American market. Such countries where the company has improved its operations to are Mexico, Japan, Australia, Canada and England. This move enables the company to efficiently increase its market share. Apparently, there are some factors at stake when selling the product to the international markets. To begin with, the company will get to interact with a new market. Apparently, people usually appreciate the change in culture (International Institute of Business 67). This also comes with the entry of a new product line. The entry of Hormel foods in other countries will also prompt the people from those countries to purchase most of its products. This is because most people like to take products from other parts of the world. People deem it as a change in culture and hence would highly appreciate taking foods form another culture.
Growing trends in the food industry come in as an opportunity for the Harlem Foods company. One of the greatest trends o0f 2016 and is set to continue occupying the food industry is the employment of technological tools. Apparently, as at the end of 2016, there was more than $1 Billion in investments on food startups in the Silicon Valley. The company has a good opportunity to invest in the tech centre. This will make the company at a point of making lots of profits because they could invest in business a lot. If the company moves from their traditional form of selling into the new modern ways of product marketing and sales, then they stand at the chance of making do much money in the food industry.
Another trend that may serve as an opportunity for the company is the new ways of selling food products. These means of making sales are propagated by companies such as Lidl, Aldi and Amazon Go. The Harlem company has been selling most of its products by listing them on stores in supermarkets. However, these new forms of making sales employ a very practical approach whereby there is a high level of interaction with customers while the company continues to make production easier. This form of making sales utilizes a very small profit margin. However, it also increases the sales of the product. On the other hand, the company does not have to worry about purchasing storage space since there will be enough storage space for the company as long as the third party companies continue to make sales. Additionally, this form of making sales saves the company the stress of making losses through spoilt products. This is because most of these companies only make sales out of ordered products. Therefore, the company will not incur losses due to lost products. The Harlem foods company need to take note of these opportunities and move 9into a seasoned period of growth whereby they will obtain huge growth out of technology.
The basic size of the company regarding revenue production yearly states it at an upper hand over most of its competitors. Apparently, it can make very dynamic moves since it has the resources to do so. For instance, all the opportunities listed above require resources to actualise. As a matter of fact, in the technology sector, a company will require a huge amount of capital before it can create a technology that is mind breaking. Additionally,m the company will need to do a lot of research to come up with the right technological mix that fits the client while it also makes various inroads to try and please the customer so that he can make more and more sales.
The nature of the Hormel foods company dictates that it depends on various third parties to ensure that it advances its business. This is evident from the fact that the company is a production company. As such, it bears a lot of risks if there are disruptions in the markets where the suppliers deal in. For instance,m disruptions among the meat producers may cause the company a lot of pain because they do not have a lot of control over the markets since they are not in their line of production (Creative Educational 56). For instance, in countries where rain majorly runs the economies, it is very hard for the companies to continue making trades when the businesses do not have rain. For instance, when a drought occurs in such a country, then the country gets to have a shortage in the supply of animals. Additionally, the animals might even die from the lack of food. This situation leaves the Harlem company in a very bad situation despite the fact that they themselves might not be affected by the drought.
The company is at a transitioning phase where it has a big potential. However, it stands to lose all this should it fail to capture all the advantages that it stands to gain if it takes into account all the advantages it has and the opportunities at its table. The company has a wide array of economies of scale bearing in mind that it has so much products on its line while it also maintains a huge number of customers. The company is able to continue its growth and will increase its growth if trades in measures that are effective as deemed by financial dynamics. Secondly, the company can continue to have a huge control in the foods industry due to its huge customer base. However, as the company continues to sale its shares at a constantly high range, then they may fail to make the prerequisite sales required. Secondly, they may fail to have enough proceeds from the sale of shares and hence reduce their revenue streams. The company needs to increase its touch with technology. Over the year 2016, the food industry faced a huge dynamic shift in that there was a huge involvement of technology in the industry with an average of $1 Billion being invested in the industry. AT o maintain growth,m the company ought to develop measures to keep up with world trends so that it does not get caught up with the technological bubble. The company is expected to have a constant growth of 2.5% over the next ten years up to 2028.
Expanded Football Field
Comparable Company Analysis
The Hormel Foods company is expected to have a similar growth to that of the companies listed above that have similar growth levels. Most of these companies are in the range of Horlem in terms of sales and profit margin.
Discounted Cash Flow
- DISCOUNT MEASURE: FREE CASH FLOW
- DISCOUNT FACTOR: WACC
- WACC: 8.78%
- GROWTH: 2.50%
- PV OF FCF: $1,136,405.86
- PV OF CONTINUING VALUE PAST 2020: $3,108,668.69
- TOTAL ENTERPRISE VALUE: $4,245,074,548.35
- TOTAL NUMBER OF SHARES: 76,520,000
- EQUITY VALUE PER SHARE:$55.48
As seen from above, the stock is overvalued and our recommendation is to hold the stock at the current price.
Current price: $78.74
Dcf analysis: $55.48
Creative Educational Video, Inc, and Insight Media (Firm). SWOT analysis. CEV Multimedia, 2009.
International Institute of Business Analysis. BABOK: A guide to the Business Analysis Body of Knowledge. 2015.
Louderback, J.? G., and J. Holmen. Managerial accounting. Thomson/South-Western, 2003.
Townsend Consulting Group, and United States. Promoting environmental sensitivity: Business organization and operations. Townsend Consulting Group, 1995.