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Smithfield on track for long-term growth
Story Date: 5/16/2013
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Source: MEATINGPLACE, 5/16/13
Smithfield Foods will weather challenging market fundamentals on a path to long-term earnings growth, a Wall Street analyst said following a presentation by company Chief Executive C. Larry Pope to investors.
Pope, speaking Tuesday at a conference sponsored by BMO Capital Markets, said Smithfield is increasing capital investments to drive efficiency, boosting consumer marketing, developing a pipeline of higher-value products, emphasizing vertical integration to improve pricing and pursuing branded packaged meat acquisitions.
BMO analyst Kenneth Zaslow, who reiterated his outperform rating on Smithfield shares, said the market has underestimated the company’s earnings potential. Smithfield increased its margin targets for packaged meats, fresh pork and international profit but lowered its hog production range.
Zaslow acknowledged that near-term fundamentals remain challenged by weak hog margins and trade issues. But the strategic initiatives Smithfield has outlined should enable the company to improve margins over the next several years, Zaslow said.
Taking a less bullish view, BB&T Capital Markets analyst Heather Jones lowered her rating on Smithfield shares to hold, saying the stock was approaching her prior price target. “The relatively soft fundamental environment does not portend material near-term upside potential to estimates or the shares,” Jones said.
Weak demand, especially from export markets that have ample supply, appears likely to persist near term, she said. Potential for further downside in feed costs could help mitigate those pressures, she noted.
Despite the challenges facing Smithfield, Jones reiterated that she does not foresee a breakup of the company, as advocated by activist shareholder Continental Grain, in the near- to intermediate-term.
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