Source:  Lisa M. Keefe, MEATINGPLACE.COM, 11/11/09

Smithfield Foods Inc. should see earnings increases that are better than projected earlier, says Farha Aslam, an equity analyst for Stephens Inc.

Noting in a report to investors on Wednesday that Smithfield's shares had climbed 13.5 percent since Friday, Aslam raised her target price for the stock by 33 percent, to $16; her projections for the company's fiscal 2010 operating earnings per share to a loss of 65 cents per share from an earlier projected loss of 95 cents per share; and her expectations for operating earnings per share in fiscal 2011 to $1.35 from $1.10.

The key trend behind her optimism, Aslam noted, was that hog prices have climbed even above year-ago levels. Three large hog producers have declared bankruptcy recently, and two more of the 25 largest producers are on the brink, she wrote. The price of corn will make a difference; heavy rainfall and a late harvest are likely to send the price of corn higher, threatening the financial health of more producers.

Still, she projects it will be another four to six months before the industry liquidates the 300,000 to 500,000 sows necessary to return to solid profitability.

Meanwhile, Deutsche Securities, the investment arm of German giant Deutsche Bank, upgraded Smithfield to a "buy" rating from a "hold" rating, and raised the target price for the company's stock to $20 from $12, according to stock trading news sites.

The sites quote the analyst's report as saying, "Evidence of sow liquidation, gilt slaughter and the exiting by weaker producers point to reduction in the breeding herd. [Estimated] industry profitability [in 2010] is still in question, but marked improvement in Hog Production should be made. We think restructuring efforts in the Pork Group should begin to bear fruit."

Shares of Smithfield were $17.15, up $1.52, in early afternoon trading Wednesday on the New York Stock Exchange.

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