Hormel's Foods May Be Affordable but its Stock Is Terribly Pricey

NEW YORK (TheStreet) -- Wall Street has a great appetite for Hormel Foods (HRL) . With the stock trading at a price-to-earnings ratio of 24, the company that brings you Skippy peanut butter and Spam meat enjoys a premium valuation.

Not only is that multiple one point higher than the industry average P/E of 23, according to Yahoo! Finance, it's also eight and 10 points higher than ConAgra (CAG) and Tyson Foods (TSN) , respectively.

Hormel stock currently trades around $51. The shares are up 12% on the year to date, outperforming the 9% gain of the packaged food sector, according to Morningstar.

There's no denying that Hormel has a great business. Led by a committed management team, Hormel, unlike some of its peers, continues to deliver strong organic growth and carries a clean balance sheet.

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To top it off, the company has executed some well-timed accretive deals, including its 2013 acquisition of Skippy peanut butter from Unilever (UL) .

Still, Hormel's valuation no longer jibes with the growth currently produced. Although 6% year-over-year revenue growth is in line with expectations, I can also buy shares of Tyson Foods at a much cheaper multiple. Not only is Tyson is growing at 11% year over year, Tyson is delivering more in earnings per share.

What's more, other well-established brands such as Nestle (NSRGY) and Kraft Foods (KRFT) are outperforming Hormel when it comes to return on capital. In the case of Kraft, investors can buy the company at half the P/E of Hormel (12) and Kraft pays a 3.80% yield compared to a Hormel's 1.80% dividend.

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