Source  Tom Johnston, MEATINGPLACE.COM, 12/8/09

Predicting improvement in the profitability of hog production in the next year, Stephens Inc. analyst Farha Aslam on Tuesday raised the firm's rating on Smithfield Foods to overweight from equal-weight and upped its share price target to $20 from $16.

"Hog producers have been in the red since the summer of 2007," Aslam wrote in a note to investors. "We believe that a turnaround, albeit a slow one, will become more evident in the coming year."

That optimism, Aslam wrote, comes from increased confidence that the H1N1 virus will not significantly affect domestic pork demand or access to international markets; optimism about pork exports and production reductions; and greater assurance of the U.S. grain harvest.

With Smithfield due to report its fiscal second-quarter 2010 earnings on Dec. 10, Stephens Inc. estimates that Smithfield's normalized mid-cycle earnings are about $2 per share and expects the company to report a loss of 33 cents per share compared with a loss of 21 cents per share in the year-ago period. The Wall Street consensus for Smithfield's second quarter is a loss of 37 cents per share.

Morgan Stanley, meanwhile, reportedly raised its quarterly earnings-per-share target for Smithfield to a loss of 49 cents from a loss of 65 cents predicted earlier, but the firm maintained its equal-weight rating on the stock. The firm cited a recent improvement in lean hog prices and packer margins, and predicts that pork demand will support increased prices despite rising wholesale costs.

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