Consumer staples stocks offer many opportunities for income investors. They’re not flashy, they’re not growing fast, but their blue chip businesses are entrenched and generate cash flow that stands the test of time. More importantly, the consumer products group provides significant capital returns, often including share buybacks and strong dividends. Dividends are what matter. Promotions such as Hormel New York Stock Exchange: HRL And Campbell Soup Company NASDAQ:CPB pay stable dividends with the prospect of growing distribution, which will help raise their share prices over time.
Today’s takeaway is that Hormel and Campbell offer investors significant buying opportunities. The stock is trading at long-term multi-year lows and the lower ends of its valuation range. Hormel shares trade at a 25% discount and Campbell shares trade at a 22% discount, with yields at the high end of their ranges. Each will yield more than 3% at the end of 2024, well above their long-term averages and 3 times the broad market average. Market cyclicality may take time to push these stocks back to the upper ends of their P/E ranges, but the move is likely and will deliver strong double-digit total returns for investors who have the time and foresight to wait.
Hormel reaches tipping point: returns to growth in F2025
Hormel Foods today
Gormel Foods
(As of 12/06/2024 ET)
- 52 week range
- $28.51
▼
$36.86
- Dividend yield
- 3.48%
- P/E ratio
- 22.24
- Target price
- $31.29
Hormel has struggled for years with post-pandemic normalization, supply chain issues and chronically low commodity prices, but is on track to return to growth in F2025. Fourth-quarter 2024 results show the year-over-year decline is narrowing and the forecast, although below consensus, is for year-over-year growth. Earnings are also expected to rise to double revenue growth.
The more important detail of F2024 is that margins remain stable. Over the past twelve months, the company has improved efficiency and maintained operating margin at 9.8% for the quarter. The end result is that net income is growing and adjusted earnings per share are flat year-over-year, supporting the return on equity outlook.
The outlook for equity returns is good, with returns expected to reach record levels in 2024. Dividend payments exceeded $150 million and amounted to less than half of operating cash flow. The company has increased its distribution volumes for nearly 60 consecutive years, a sign of stability, and may continue to do so for the foreseeable future. Annual growth won’t be sustainable, but a mid-single-digit CAGR is enough to offset inflation. Analysts have a consensus 2024 end-of-2024 hold rating for HRL stock and believe its fair value is around $42.50.
Campbell Soup Company Continues Growth in 2025
Campbell’s soup today
Campbell’s soup
(As of 12/6/2024 6:15 PM ET)
- 52 week range
- $40.26
▼
$52.81
- Dividend yield
- 3.46%
- P/E ratio
- 23.35
- Target price
- $50.92
Campbell Soup Company’s first quarter 2025 results show it will continue to grow in 2025. The company’s first-quarter results were better than expected, with revenue up 10% and full-year guidance scrapped, providing a tailwind for the share price. The company expects growth to remain stable this year in the 9% to 10% range with relatively flat margins. The company increased its gross profit in the quarter, but higher costs and interest expense offset that.
The important point is that Campbell is a growth company that trades at a high valuation relative to its peers, its historical norm, and the broader market, while paying a reliable dividend of 3.2% yield. The company hasn’t increased its payout in several years, but has done so in the past and could do so again in 2025. The payout ratio is low at approximately 35%, giving the company plenty of flexibility to increase its return on capital.
Analyst trends support this market. Analyst sentiment shifted from negative to positive mid-year, raising the consensus rating from Reduce to Hold and raising the price target by 8%. The consensus price target suggests 15% upside from critical support levels, and revision trends suggest higher price levels will be reached. The upper range is around $60 and another 15% above consensus.
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