Source: Janie Gabbett, MEATINGPLACE.COM, 12/8/08
Citing reduced production and possible increased demand for pork in 2009 because it is a less-expensive protein, Deutsche Bank upgraded Smithfield Foods' stock to a "buy" from a "hold" on Monday.
On Friday, D.A. Davidson also upgraded the pork processor to a "buy" from "neutral" while BB&T Capital Markets reiterated its "buy" recommendation and BMO Capital markets reiterated its "outperform" rating.
According to Deutsche Bank, the increasingly poor economic outlook may be good news for Smithfield. "(Pork's) value-positioning (i.e. hot dogs) within retail suggest out-performance versus more expensive proteins in an economic downturn," StreetInsider.com quoted the Deutsche Bank note to investors as saying.
The investment bank also pointed out:
• a likely lower hog supply than stated in USDA's September Hogs & Pigs report
• lower imports from Canada owing to liquidation and Country of Origin Labeling requirements
• accelerated sow liquidation by Smithfield point to a 4 percent to 5 percent drop in the 2009 hog supply
• pork is the least consumed protein in the foodservice sector, which is so far harder hit by the recession than retail
"While the risk of lower than expected pork demand and, thus lower hog prices, still exists, we believe the risk/reward scenario is attractive," Deutsche Bank concluded.
Smithfield shares were trading at $9.98 per share, up $1.29, or nearly 15 percent, in early afternoon trade on the New York Stock Exchange.
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