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Source: Lisa M. Keefe, MEATINGPLACE.COM, 1/6/09
An equity analyst at BB&T Capital Markets has lowered her earnings estimates for Smithfield Foods' third and fourth fiscal quarters. Heather Jones now expects the pork processor to post a loss of 39 cents per share for the third fiscal quarter, ending in February, and a loss of 13 cents per share for the fourth fiscal quarter, ending in May.
Previously, Jones expected Smithfield to earn 5 cents and 6 cents per share for the third and fourth quarters, respectively.
With the new estimates for earnings per share, Jones noted that Smithfield would be out of compliance with the interest coverage covenant for the last two quarters of the fiscal year. She added, however, that management's repeated assurances that Smithfield would remain in compliance are not necessarily in opposition to her projected losses on operations. She speculates that perhaps a sizeable cash distribution from an affiliate or other unforeseen items could lift the company's bottom line in a way that is not publicly apparent.
With the difficult economic climate for pork production and export, Smithfield's ability to meet its loan covenants is a matter of high interest and speculation among investors and within the industry.
Meanwhile, Jones projects that the company's stock price is likely to rise to $19 per share over the next 12 months, up from the $13 per share that she expected previously. Earlier this week, the stock was trading around $14.50 per share. Even so, Jones believes that her higher projection may prove conservative.
"We believe the company is strategically positioned to benefit greatly from a rebound due to its vertically integrated model," she wrote.
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