Hormel Foods CorporationHRLNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $60.43 per share(market-calibrated)

+145.6%

Upside to Fair Value

Current

$24.60

Pure Model

$65.88

Fair Value

$60.43

Bull Case

$75.38

Bear Case

$58.70

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $65.88.

What's Driving This Ratingfor HRL

✓

CapEx already efficient

CapEx at 2.22% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 9.10% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.2B (14.55% margin).

→

Moderate revenue growth

Analyst consensus projects 1.65% revenue growth, fading to 2.50% by Year 10. Revenue reaches $15.2B (vs $12.1B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 60.77% indicates efficient cash generation. FCF reaches $1.5B by Year 10 (10.12% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.31

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.90%

Cost of Debt

Pre-tax Cost of Debt2.37%

Tax Rate27.99%

After-tax Cost of Debt1.70%

Equity Weight (E/V)82.57%

Debt Weight (D/V)17.43%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (82.57% × 5.90%) + (17.43% × 1.70%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$12.3B	$12.8B	$13.5B	$14.2B	$15.2B
EBIT	$1.1B	$1.2B	$1.6B	$1.9B	$2.2B
Tax	$313M	$327M	$437M	$522M	$621M
NOPAT	$806M	$840M	$1.1B	$1.3B	$1.6B
+ Depreciation	$257M	$268M	$282M	$296M	$319M
- Capex	$274M	$285M	$299M	$315M	$339M
- Δ NWC	$19M	$29M	$31M	$33M	$36M
Free Cash Flow	$771M	$795M	$1.1B	$1.3B	$1.5B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$731M	$677M	$822M	$888M	$903M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.5B

Terminal Growth Rate2.50%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$52.7B

PV of Terminal Value$30.8B

Exit Multiple Method

Year 10 EBITDA$2.5B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$50.7B

PV of Terminal Value$29.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$8.2B

PV of Terminal Value$30.8B

Enterprise Value$39.0B

(-) Net Debt$2.2B

Equity Value$36.8B

Shares Outstanding550M

Price per Share$66.92

Exit Multiple Method

PV of Projected FCFs$8.2B

PV of Terminal Value$29.7B

Enterprise Value$37.9B

(-) Net Debt$2.2B

Equity Value$35.7B

Shares Outstanding550M

Price per Share$64.85

Pure Model Fair Value

$65.88

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.50%	$95.73	$91.59	$87.64	$83.89	$80.31
4.50%	$71.93	$78.21	$87.64	$83.89	$80.31
5.50%	$58.67	$61.76	$65.88	$71.65	$80.31
6.50%	$49.80	$51.56	$53.77	$56.61	$60.40
7.50%	$43.23	$44.33	$45.66	$47.29	$49.32

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$58.70

138.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.39

Base Case

$65.88

167.8% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.31

Bull Case

$75.38

206.4% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.30

Key Assumptions & Drivers• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth1.65%

Year 3 Revenue Growth2.39%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin9.10%

Terminal EBIT Margin16.00%

Tax Rate27.99%

Historical Capex / Rev2.22%

NWC / Revenue9.56%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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