Iron Irma Looks for Peter

Hormel Foods Corporation
Over the course of the last two years, the company has spent $800m on acquisitions. These management moves have served to decrease y-o-y revenues by 4% and net income after taxes by 3%. On a more positive note, y-o-y dividends did increase by 17%. Personally I think dividends increased in the hopes that investors would fail to notice that -y-o-y goodwill increased by 16%, intangibles increased by 14%, and free cash flow fell by almost 2.5%. Maybe investors should start thinking about a management change here, bring someone in that can actually run the show, instead of just overpaying for acquisitions and hoping they work out.

Hormel Foods Corporation (NYSE: HRL) - FYE 10/2017 - SELL HALF - The stock is trading at levels above my current $23 fair value estimate, but below my $37 close target - Please See Linked Worksheet

Sanderson Farms, Inc.
You know it's one helluva note when all you want to do is be in the chicken business, that you have to continually defend yourself in the courthouse. During 2016 and 2017, the company has become a party to numerous lawsuits, alleging all manner of price fixing and to conspiring to keep payouts farmers at low levels. My point is, pay attention. Lawsuits have a funny way of costing everyone but the lawyers lots of money. On a more positive note, y-o-y earnings grew at a 48% annual clip, y-o-y free cash flow grew at a 187% annual clip, while sales increased 19%. To add to these great financial numbers, the company's long-term debt remained at $0 for the second consecutive year. This is probably going to change for FY 2018 as the company moves forward with new facilities in Texas.

Sanderson Farms, Inc. (Nasdaq: SAFM) - FYE 10/2017 - FAIRLY VALUED - The stock is trading at levels in line with my current $207 fair value estimate - Please See Linked Worksheet

Deere and Company
Investors have thanked the company for managing the business with an entrepreneurial spirit, the purchase of Blue River Technology this FY is an example, by biding up the stock price to current levels. Year over year earnings growth of 23%, and y-o-y free cash flow growth of 22% will certainly help maintaining current pricing levels. I would have preferred to see a net reduction in debt instead of the y-o-y increase of 12%, but investors seemed to shrug that increase off as just the cost of doing business, pointing to the increase in y-o-y revenues of 12% as well as the y-o-y price increase of 34%. As long as investors remember that perfection, which is where this stock is priced, increases risk, things should be good, because by the time you see them running like a Deere, it really is to late to join the herd.

Deere and Company (NYSE: DE) - FYE 10/2017 - FAIRLY VALUED - The stock is trading at levels in line with my current $173 fair value estimate - Please See Linked Worksheet

The Toro Company
I don't know, I see these companies that spend money on acquisitions and on stock buy backs and it just makes me wonder. I mean I would be pissed to know I spent $24m buying a company only to see my y-o-y sales increase by 5% and my y-o-y cost of sales increase by 4%. Sure net earnings increased by 18%, but when you back out the 12% of earnings increases derived from income unrelated to their core business, maybe spending $24m buying an irrigation company in Germany wasn't the best use of company dollars. Couple that bit of management wizardry with a $159m in stock repurchases, a 45% y-o-y increase, and to me it all just adds up to a stock that is going to be hard pressed to beat any sort of estimates over the next several years. I guess in this case the grass really is greener somewhere else.

The Toro Company (NYSE: TTC) - FYE 10/2017 - OVER VALUED - The stock is trading at levels above my current $37 fair value estimate - Please See Linked Worksheet

Have a great week!

Wax