Wachovia downgraded Hormel Foods (HRL ) to market perform from outperform.
Analyst Jonathan Feeney says although Hormel is an excellent company with strong cyclical recovery prospects, he believes the shares are priced accordingly. He says even adding 10 cents of possible upside to estimates yields a p-e premium to the food group -- which, in his view, remains unwarranted given the cyclical nature of the meat business.
Feeney notes the forward p-e is now a 7% premium to the packaged-food group, but says the enterprise-value-to-EBITDA of 9.1 remains very reasonable. He note the rock-solid cash flow translates to superior acquisition capability -- but he thinks the potential for Hormel to acquire accretively is already baked into today's price.