CS First Boston upgraded Hormal Foods (HRL) to outperform from neutral. It also increased its $31 price target to $34.50.
Analyst David Nelson says he upgrades as the potential retreat in hog prices could bring Hormel's grocery product margins back toward normalized levels, and potentially swing profits by about $30 million or 15 cents a share. He thinks Hormel is the best in industry at adding value to fresh meat, which provides structural margin upside; many talk of this potential, but Hormel actually delivers.
Nelson adds that the company's fresh meat operations are complemented by its stable of mostly canned grocery products (e.g. Spam), which provide a little bit of growth and a lot of cash flow.
He sees earnings per share of $1.75 for fiscal year 2005 (October) and $1.98 for fiscal year 2006.