Source:  Dani Friedland, MEATINGPLACE.COM, 3/24/10

Just a few weeks after cutting stock ratings for Tyson Foods and Sanderson Farms to "hold," BB&T Capital Markets analyst Heather Jones raised them back to "buy" and increased Sanderson's earnings forecast.

Jones said favorable poultry-market conditions such as increased prices, recovering demand and lower feed costs prompted the move for both companies.

"Boneless/skinless breast meat pricing has increased 11 percent since the beginning of March and is now tracking up nearly 10 percent from last year," she wrote in a note to investors, adding that poultry prices don't usually rise in the run-up to Easter.

There are indications that domestic demand is gaining strength, with anecdotal evidence of particular demand in both retail and foodservice, she said.

Meanwhile, Jones said feed costs "have been stable and are at attractive levels in the face of robust domestic and global supply."

In light of the improved demand and pricing, Jones raised estimates of Sanderson's fiscal years 2010 and 2011 to $5.25 and $5.40, respectively, from $5.00 and $5.25, noting that these estimates are conservative.

Beef

Positive trends in the beef markets also bolstered Tyson's rating. "Packer margins have stayed strong, and we believe the company is continuing to outperform the industry," Jones wrote.

The industry has been helped by a decrease in imports since November, while exports have been strong. Meanwhile, strong hide values have helped packer margins.

Tyson's stock is up 50 percent since the beginning of the year, while Sanderson has increased by almost 30 percent.

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