Source: Chris Scott, MEATINGPLACE, 11/14/11

JP Morgan Chase analyst Ken Goldman today upgraded Tyson Foods shares to “overweight” from “neutral” and raised its Dec. 12 target price to $27 from $25 a share, citing improved fundamentals.

Goldman noted that industry contacts believe that supply cuts are finally helping lift poultry prices, with breast prices climbing two cents last week to match their 10-year average. The analyst expects breast prices to continue to climb this week, noting that leg quarter prices are also holding steady. Goldman adds that conversations with agriculture and protein lenders indicate that working capital will be extremely tight until company balance sheets are in better shape, a process that could take as long as two years.

Concerns that Tyson would be adversely hit by another rise in corn prices are also easing, especially with Tyson locking in on lower corn and soy prices during a recent dip, according to Goldman. And despite continuing pressure on margins in beef, Goldman is confident that Tyson is in a stronger position than the industry as a whole because of operating efficiencies and its plants being away from drought-plagued regions of the country. The analyst sees a significantly lower beef margin in fiscal 2012 versus this year, but it will not be negative as some other analysts have predicted.
 

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