Source: Tom Johnston, MEATINGPLACE, 1/25/12

Optimism around the recovery in chicken market fundamentals has some analysts confident in Tyson Foods Inc.’s future stock performance. But larger-than-expected beef margin erosion has Stephens Inc.’s Farha Aslam worried enough to lower the rating to equal-weight from overweight and reduce earnings estimates.

“We believe lack of visibility (into the beef market) will continue to way on Tyson’s share price,” she wrote in a note to investors. Aslam now puts the target price of Tyson stock at $21, down from $24.

Meanwhile, Aslam reduced her fiscal 2012 earnings-per-share estimate to $1.90 from $2.05. Tyson is scheduled to report first-quarter earnings on Feb. 3. She expects the company to report earnings of 33 cents per share, compared with 75 cents per share in the year-ago period.

“Our lower outlook reflects weaker beef profitability given the negative supply/demand fundamentals currently plaguing the industry,” she wrote, noting that her numbers reflect a continued improvement in the chicken market and expected strong profitability in pork.

Aslam said beef profitability will depend on the industry’s ability to moderate slaughter levels, decrease cattle prices and increase cut-out prices.

“The packers have moderated slaughter levels slightly in the last two weeks, but more cuts are needed,” she noted. “Cattle futures have rallied in recent weeks. Retailers have been pushing back on pricing, limiting cut out values due to a reluctance to increase shelf prices in a soft economy.”

Cattle supplies in the near term are “ample,” but the supply will likely tighten as the year progresses. Experts projected a 2 percent to 5 percent decrease.

“There seems to be a rush to secure cattle in both the feeder cattle and fed cattle markets,” Aslam wrote.

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