HORMEL FOODS CORP /DE/ (HRL) stock intrinsic value fair value estimate & owner earnings analysis

Hormel Foods sells branded meat and shelf-stable foods (SPAM, Hormel chili, Dinty Moore, Skippy peanut butter, Planters nuts, Jennie-O turkey, Applegate natural meats, Columbus deli meats and Hormel Black Label bacon) to US grocers, foodservice distributors and convenience stores, with a small international business. It is a mature business. We measure the cash it produces before paying its lenders: operating cash flow with working-capital swings removed, less stock compensation and the capital spending needed to keep the plants running, plus interest. On that measure it earned between $1.43 and $1.80 per share in nine of the last ten fiscal years (FY2016 to FY2025). The exception was FY2022 at $2.35, lifted by inflation-era pricing and a $177 million deferred-tax benefit. The 2021 Planters purchase, which cost about $3.4 billion and was paid for largely with borrowed money, has not lifted that per-share figure. FY2023 came in at $1.65 and FY2024 at $1.73. FY2025 fell 17% to $1.43 as pork belly, beef and nut costs rose. In the same year the company wrote down the Planters trade name by $59 million, along with the Chi-Chi's name, a Columbus customer relationship and its Indonesian investment. Through the first nine months of fiscal 2026 the same measure is running roughly level with the prior year. That period absorbed a $38 million litigation settlement, a $61 million loss on selling the whole-bird turkey business (with its Melrose, Minnesota plant and Swanville, Minnesota feed mill), a $56 million loss on exiting Brazil (the Ceratti business) and a further $48 million write-down of the Indonesian stake. The write-downs are non-cash and are added back. The recurring pattern of buying brands and later writing them down is carried in the bear case instead. We anchor on $1.55 per share. That is roughly the ten-year median and below the FY2023 to FY2024 average, because FY2022 was inflated and FY2025 to FY2026 sit at a cost-squeezed low. Because FY2025 fell 17%, the base case starts year one at $1.45, about where fiscal 2026 is tracking, rather than assuming an immediate rebound. We credit no growth. Per-share cash generation has been flat for a decade despite inflation and several acquisitions, so nothing beyond holding the existing level is secured. Base case: $1.45 next year, $1.50 the year after, then $1.55 a year, for 40 years in total. The long life rests on the brands' record: SPAM, Dinty Moore, Hormel chili and Skippy have each sold for roughly 90 years. We still stop at 40 years rather than assume forever. The business is worth about $23.18 per share (about $12.8 billion). Bear case: no recovery. Cash stays at $1.40 a year for five years, then declines 2% a year for 25 more years as Planters keeps losing value, commodity cost spikes like those of FY2019 and FY2025 recur and litigation costs continue. The story ends after year 30, valuing the business at about $16.91 per share (about $9.3 billion). Bull case: Transform and Modernize cost savings and the exit from the low-margin whole-bird turkey and Brazil businesses bring cash back to the FY2024 level of $1.73 by year three, held for 60 years. That is worth about $27.64 per share (about $15.2 billion). Debt: Hormel owes $2.85 billion of fixed-rate senior notes: $500 million at 4.80% due March 2027, $750 million at 1.70% due June 2028, $1.0 billion at 1.80% due June 2030 and $600 million at 3.05% due June 2051. Against that it held $840 million of cash at July 26, 2026. Most of the notes carry coupons far below 6%, so the debt costs less to carry than its face value suggests. We credit about $440 million for that and treat about $540 million of the cash as surplus, giving net debt of roughly $1.88 billion, or $3.40 per share. Interest of about $73 million a year is covered more than ten times by the business's cash flow, and refinancing all of it at 6% would still be easily carried. After debt, the shares are worth about $13.51 in the bear case, $19.78 in the base case and $24.24 in the bull case. What would make this wrong: further decay in the acquired brands that pushes per-share cash below about $1.30 for several years, or another large debt-funded acquisition that, like Planters, adds debt faster than it adds per-share cash. On the upside, a return to sustained growth in per-share cash would lift the value, but the last decade has not shown one. The margin-of-safety price is around $13.50, close to the bear-case value. For a business that has not grown its per-share cash in ten years, the cases imply a high return only from a low starting price. Compared with our August 2026 view (bear $7.31, base $15.61, bull $26.18), the bear and base values rise and the bull value edges down. The change comes mainly from method rather than news. Every case is now discounted at the same 6% rate, with risk expressed through the cases themselves rather than through higher discount rates. The business is also now valued before interest, with debt then subtracted after adjusting for its low coupons. The news since then was mixed: the turkey and Brazil exits, the litigation settlement and the Indonesian write-down. It is reflected in a lower starting year rather than a lower long-run level.