Smithfield Foods, Inc. (SFD) Could Be Worth Much More

Its peers enjoy much higher valuation

Hillshire Brands is trading at $33.10 per share, with the total market cap of $4.1 billion. The market values Hillshire Brands Co (NYSE:HSH) at nearly 9.5 times its trailing EBITDA. Hillshire, the owner of several brands including Ball Park, Hillshire Farm, State Fair and Jimmy Dean, is one of the largest meat-focused food businesses in North America. It has the market-leading position in many niche markets including breakfast sausage, smoked sausage, hot dogs and super premium sausage.

Looking forward to 2015, Hillshire Brands Co (NYSE:HSH) expected to deliver volume growth of 2% to 3% with revenue growth of 4% to 5%. The operating margin is expected to stay around 10%. The company estimates that its 2013 net sales will be a bit higher than last year, and projects adjusted diluted EPS of around $1.60 to $1.70 per share.

Hormel Foods is the most expensive business among the three. It is trading at around $38.60 per share, with the total market cap of more than $10.2 billion. The market values Hormel Foods at 11.9 times its trailing EBITDA. In the second quarter, while revenue experienced 6.9% growth to $2.1 billion, net income slipped a bit to $125.5 million from $127.9 million last year. For the full year, Hormel Foods Corporation (NYSE:HRL) expects to generate $1.93 to $2.03 earnings per share.

Income investors like Hormel Foods Corporation (NYSE:HRL) for uninterrupted dividends that have been paid for around 47 years. In the past 10 years, its dividend was raised from $0.21 per share to $0.60 per share. Recently, it announced that it would pay a quarterly dividend of $0.68 per share. At the current trading price, Hormel Foods offers investors a decent dividend yield at 1.8%. With the historical uninterrupted dividends in the past nearly five decades, Hormel Foods is expected to continue to consistently return cash to investors in the future.

My Foolish take

Smithfield, under Starboard’s careful analysis, appears quite undervalued at $34 per share. After adjusting cash, gross debt and minority interest, Smithfield Foods, Inc. (NYSE:SFD)’s equity value is in the range of around $7.1 billion to nearly $9 billion, valuing the company at $44 to $55 per share, a 29% to 62% premium to Shuanghui’s offer of $34 per share.

The article Smithfield Could Be Worth Much More originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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