Goldman Sachs Raises Estimates on Hormel Foods (HRL)

Goldman Sachs is raising its EPS guidance on Hormel Foods HRL following HRL reporting 4Q2010 EPS of $0.78, $0.12 above GS's estimate. In a note to clients, Goldman Sachs writes, "We are raising estimates to $3.20 for 2011, $3.45 for 2012, and $3.70 for 2013 (from $2.95, $3.21, and $3.45) to reflect the following: (1) Jennie-O Turkey profits +3%-4% – HRL revealed it is over 50% hedged on feed costs next year which will mitigate the impact of higher corn and soybean prices in the near term. We additionally expect the turkey supply-demand balance to accommodate modest price increases next year. (2) Refrigerated Foods profits +0-1% – We expect a moderate increase as pork cutout margins come off peak levels and volumes hold steady. (3) Grocery Products +6% – HRL will get some benefit from deal accretion and a catch-up as price increases catch-up with commodity inflation. (4) Balance sheet – We are forecasting $200 mn of share buybacks as HRL puts its net cash position to work, but we note a bolt-on acquisition or investment with attractive accretion or strategic merit is possible." HRL closed Tuesday at $49.15.