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Chicken cycle rebound priced into Pilgrim’s, analyst says
Story Date: 3/15/2012
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Source: MEATINGPLACE, 3/14/12
Pilgrim’s Pride Corp. is expected to return to profitability in the fiscal first quarter, aided by recovering chicken prices, strong exports and continued industry production discipline, according to one Wall Street analyst.
Nonetheless, Stephens Inc. analyst Farha Aslam downgraded the company’s shares, saying the positive factors have already pushed up the stock almost 40 percent since mid-February. Pilgrim’s shares are currently trading at about $7.25.
“While company and industry fundamentals are heading in the right direction, our view is that the stock price is now reflecting the good news,” Aslam said in a note to clients, explaining her downgrade of the stock to “equal weight” from “overweight.”
Among the factors Aslam cited that are buoying Pilgrim’s stock:
A broad base of customers, led by Mexico, the Far East and Africa, are contributing to strong exports. The company expects double-digit export sales growth in 2012 after a 40 percent year-over-year increase in 2011 achieved by targeting local customer needs.Exports are driving up prices for leg quarters, with some customers booking at 51 cents a pound. Boneless skinless breast meat prices also are expected to rise through the end of this month, and the wing market is very tight.Pilgrim’s is improving operations, focusing on product mix and yield. The company has also reduced its exposure to fixed price contracts, with most contracts now market-based or including a reset provision linked to the underlying commodity.The company achieved cost savings of $300 million in 2011 and is targeting an incremental $200 million of savings in fiscal 2012, above its original $400 million combined goal.
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