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Analyst likes prospects for big chicken companies
Story Date: 12/4/2012
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Source: MEATINGPLACE, 12/3/12
Sanderson Farms, Tyson Foods and Pilgrim’s Pride all stand to benefit from strong retail demand for chicken even as the industry struggles to return to profitability, Stephens Inc. analyst Farha Aslam said.
The analyst raised her rating on Pilgrim’s Pride stock to overweight from equal-weight, saying better pricing in Mexico will drive increased profitability for the company. She also expects better profitability in the U.S. business, and increased her forecast for Pilgrim’s fiscal 2013 earnings per share to 65 cents from her previous forecast of 5 cents. She boosted her price target on the stock to $9 from $5.50.
Aslam also raised her profit outlook for Sanderson, saying the company will benefit from its strategy of building poultry plants to increase the pounds it produces. She now expects fiscal 2013 operating earnings per share of $1.95, more than double her prior projection of 90 cents. She also raised her price target for the stock to $50 from $38.
She noted Sanderson recently said it is targeting fall 2013 to begin construction of a plant originally slated for Nash County, N.C. A new location has not yet been announced for the proposed plant. The company also said two more plants could be added at later dates.
“Sanderson is one of the most efficient poultry producers in the industry and is well positioned to grow when the U.S. chicken industry turns. That said, we anticipate that the turn in the industry's profitability will be slow driven largely by a moderation in grain prices rather than a significant cut in production,” Aslam wrote in a note to clients.
Aslam said she also was becoming more bullish on Tyson Foods, her top pick in the protein industry, in part due to expectations for Japan to increase the age limit it accepts on U.S. beef imports to 30 months and young by year end.
Tyson also will benefit longer term from growth in international sales of poultry, with the company focused on expansion in Brazil, China, India and to a lesser extent Mexico, Aslam said.
Industry profitability
Aslam said 45 percent of the chicken industry lost money in September, with a 14-cent-per-pound spread between the top and bottom players. October and November are expected to be less profitable months. Most companies are expected to be in the red for November through January, she said.
Sentiment in the industry is that production cuts will be slow to materialize, particularly given the two largest players, Tyson and Pilgrim’s Pride, have shown little desire to cut pounds produced. If profitability continues to struggle in the first quarter of calendar 2013, a moderate production cut may materialize, she said.
“There is cautious optimism among poultry producers, which generally does not lead to production cuts,” Aslam wrote.
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