Source: MEATINGPLACE, 2/25/15

Encouraged by soild first-quarter results for Sanderson Farms, two Wall Street analysts boosted 2016 forecasts for the company to reflect growing confidence that the market can absorb rising chicken production.

The combination of high beef prices, lower gas prices, strong foodservice demand and greater exports of hatching eggs to Mexico will cushion the expected pullback in chicken margins due to production increases, BMO Capital Markets analyst Kenneth Zaslow said.

“The U.S. chicken industry will taper off slowly,” Zaslow wrote in a report titled “The Energizer Chicken.”

He also raised his forecast for Sanderson’s fiscal 2016 earnings $7.27 per share from $6.51.

Robust demand
Two wing-centered restaurant chains are expanding, and other operators are heavily promoting chicken. McDonald’s is bringing back tenders in March, Burger King is advertising nuggets and Subway is prominently featuring chicken strips, Zaslow noted.

Sanderson believes Mexican demand for hatching eggs will limit domestic expansion in 2015, and cattle expansion efforts will reduce beef supplies and boost beef prices as producers hold back heifers for breeding, Zaslow said.

Stephens analyst Farha Aslam also raised her forecast for Sanderson’s 2016 earnings to $11 a share from $10.60 to reflect increased pricing driven by strong retail and foodservice demand.

She expects lower gas prices to boost restaurant traffic and demand for protein to pick up in March as the weather improves.

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