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Skeptics say chicken boom cycle about to peak
Story Date: 8/30/2013
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Source: MEATINGPLACE, 8/29/13
Following Sanderson Farms’ stellar earnings report on Tuesday, analysts are raising the question of whether the chicken industry’s positive momentum is nearing the end of its run.
Sanderson posted fiscal third-quarter earnings that were double year-ago levels due to strong pricing and demand, but its stock fell as investors worried that the industry’s cycle is about to turn.
JP Morgan analyst Ken Goldman cut his fiscal 2014 earnings estimate for Sanderson to $6.57 a share from $8.92 to reflect faster-than-expected growth in the breeder flock and higher feed prices than he first expected.
“Though we believe earnings will stay solid for the next couple of quarters, trends are gradually getting less attractive in the chicken industry,” Goldman wrote in a note to clients.
Goldman did note that Sanderson Chief Executive Joe Sanderson played down the possibility of a meaningful breeder flock increase until next year and pointed out that the number of pullets remains low.
BMO Capital Markets analyst Kenneth Zaslow said that while chicken production growth has begun to accelerate, industry fundamentals have yet to peak, and chicken margins should remain robust.
“The ability to aggressively increase chicken production over the next 9-12 months is limited by the absence of sufficient hatching eggs,” Zaslow said in a research note.
He predicted modest production growth would pressure chicken prices over the next 12 months but lower feed costs would create a cushion.
Stephens Inc. analyst Farha Aslam, however, kept an “overweight” rating on Sanderson shares, saying industry participants do not anticipate production to expand materially until the second half of 2014 given the limited supply of breeders.
She also believes consumer demand for chicken will remain strong, driven by the value of chicken relative to beef.
For more stories, go to http://www.meatingplace.com/.
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