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Hormel: Tremendous History, Uninspiring Valuation

NEW YORK ( F.A.S.T. Graphs) -- Minnesota-based Hormel Foods (HRL - Get Report) is probably better known for its Spam product rather than its namesake brand.

Yet, this company carries an assortment of food products ranging from microwavable meals and chili to sausage, pepperoni and refrigerated entrees -- a stable of about 25 Hormel product offerings.

In addition, Hormel Foods has about 25 more brands under various names like Chi-Chi's, Del Fuerte, Farmer John along with the company's recent acquisition of Skippy peanut butter.

I use my articles on as a means to reveal an intelligent framework for making sound decisions that can keep emotions out of the equation. This means demonstrating the relationship between price and a company's historical operating performance via the Fundamentals Analyzer Software Tool of F.A.S.T. Graphs.

In this case I'd like to expand upon something Jim Cramer said recently on Mad Money. Cramer said about Hormel Foods that he "wasn't crazy" about the last quarter. "Why don't we wait to see the quarter? If it goes down, we'll buy it. Hormel Foods has a great long-term track record for dividends," he said.

I certainly agree with the dividend portion and believe we'll suggest a similar ideology with regard to what a Hormel Foods' investment would mean today. The quarter for Hormel Foods was actually quite good. Earnings beat the analyst consensus and the company raised its dividend.

In turn, the stock, which closed around $48 Tuesday, is about 7% higher than it was just a week ago. If Cramer wouldn't buy it around $42 last week, he certainly wouldn't be a buyer today. More than that, I would express great caution on this front.

Given the company's wide collection of brands, one might expect reasonable business results. This is generally what we see. In viewing the Earnings and Price Correlated graph below, one can see that Hormel Foods has been an exceptional company over the past 15 years. Operating earnings (orange line) grew by over 10% a year, while the dividend (pink line) increased every year.

In fact, Hormel Foods has not only paid but also increased its dividend for 48 consecutive years. Over the past decade these increases have come in at an average annual rate of about 12%, while the company is only paying out about a third of its earnings.

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