“It is a great company with great management, make no mistake,” Ramey said. “But I think the margin outlook is going to be much tougher.”
Stephens food analyst Fahra Aslam agrees there will be margin pressure, but she is more optimistic on the share price. The analyst rates Hormel “equal weight,” with a $31 price target.
In the near-term, Aslam expects Hormel to benefit from good grain hedges and a liquidation of the hog herd. “Longer term, it will cycle into higher grain prices,” she said and that will have a negative impact on earnings.
She gives management more credit in being able to manage through a challenging environment and continue to innovate. “They're very smart in how they put their marketing dollars to work,” Aslam added, pointing to the fact that Spam helped Hormel grow volumes 4 percent in the fiscal third quarter.
This was impressive, Aslam said, considering “it is very challenging to find growth in the grocery industry.”
—By CNBC.com’s Justin Menza
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Stephens expects to receive or intends to seek compensation for investment banking services from Hormel in the next three months.