Source:  MEATINGPLACE.COM, 2/28/11

Is it time to buy shares of Sanderson Farms? Some Wall Street analysts and investors seem to think so, after the chicken processor on Thursday posted a deeper-than-expected first-quarter loss.

With three-quarters of the industry losing money and those not yet in the red likely to see losses soon as grain hedges roll off, production cuts are inevitable, argues BMO Capital Markets analyst Kenneth Zaslow. And chicken prices are bound to respond quickly, he noted, given tight supplies and near-record prices of competing proteins.

Zaslow, who rates Sanderson “outperform,” called it the “quintessential” value stock.

“We believe SAFM will be the surprise investment in 2011, as market conditions are so bad that it very well may be good for investors with an increasing likelihood that the chicken cycle is nearing a bottom,” said Zaslow, in a note to clients Friday.

He expects the company to post record losses in the first half of fiscal 2011, but noted the industry tends to revert quickly to historical profit margins — typically in less than one year.

Stephens Inc. analyst Farha Aslam, who has an “equal-weight” rating on Sanderson, said the shares found a cushion after Thursday’s sell-off as value buyers and cyclical investors bought the stock.

“Given the strong investor interest, we believe SAFM stock has largely bottomed unless there is a strong rally in corn. The bad news in chicken is now well known,” Aslam said.

While Aslam anticipates a turnaround in industry fundamentals, she cautioned a recovery “could prove less bountiful than in past cycles given grain prices are expected to remain elevated and chicken producers have a propensity to overproduce.”
 

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