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Hormel Tumbles as Key Banc Sees Buying Opportunity

NEW YORK ( TheStreet) - Hormel Foods ( HRL) tumbled after the food producer announced low forecasts for success in fiscal 2013 in a press release this morning. Key Banc used new initiatives to upgrade Hormel shares to buy from hold despite the expected decline.

Hormel Foods were falling 4.4% to $38.85.

Hormel lowered its full year guidance range from $1.93-$2.03 a share to $1.88-$1.96. Chairman, President and CEO Jeffrey M. Ettinger attributed the negative expectations to shortcomings in their pork operations, higher input costs and underselling refrigerated food products.

Key Banc released a report this morning setting a price target at $48 after upgrading the Austin, MN from hold to buy. Despite rising corn and hog prices, the analysts led by Akshay S . Jagdale believe that the January acquisition of Skippy Peanut Butter, organic growth initiatives and the earnings of their Jennie-O-Turkey Stores position the company for success in the coming future.

"We were impressed by the pipeline of new products and expect organic growth to accelerate," the analysts wrote.

New products include Hormel Natural Choice lunchmeat and Hormel REV Wraps. The Natural Choice meats have no added preservatives but maintain a long shelf life by utilizing high pressure pasteurization technology. The Hormel REV Wrap, according to the company, may be the best product launch in its history. The product was described by Key Banc as a Lunchable marketed toward teenagers that come in 8 different varieties ranging from Peppered turkey to Italian Style. Hormel is also looking to expand their Compleats refrigerated line with breakfast options.

Hormel may see downturns in 2013 but the analysts are optimistic about the 2014 fiscal year. Key Banc expects food costs to lower by $32 million year-over-year, predicting corn prices decrease to $4.30 a bushel and soy beans to $300/ST. The Jennie-O-Turkey Stores are expected to benefit from continuing to provide value options to customers while increasing marketing.

"We remain very bullish about our future earnings potential. We will provide more details regarding the outlook during our Investor Day on June 26, 2013," Ettinger said.

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