This poultry producer just surprised analysts, posting $0.99 per share—twenty cents higher than expected, and earnings forecasts have risen $0.67 in the past 90 days.
Pilgrim’s Pride Corp. (PPC)
from Blue Chip Growth
Pilgrim’s Pride Corp. (PPC) is the second-largest chicken producer in the world, supplying a variety of fresh, fully cooked, ready-to-cook, and individually frozen chicken. With 38,000 employees and over 40 processing plants, the company can process 36 million chickens per week. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers across the U.S., Puerto Rico and Mexico. The company also exports chicken products to 105 countries around the world.
And while Pilgrim’s Pride wasn’t able to outbid Tyson for Hillshire Farms, it is acquiring Tyson’s Mexican poultry business for $400 million. The deal is expected to add $650 million to annual revenues, along with three new plants, seven distribution centers and 5,400 employees. The company’s business in Mexico remains a key growth area.
Right now, PPC shares are an excellent buy in the wake a recent pullback, after competitor Sanderson Farms (SAFM) released its outlook for FY 2014 and 2015. Sanderson Farms announced that it expects to process 3.067 billion pounds of poultry in 2014 and 3.358 billion pounds in 2015. The firm noted that chicken product sales are declining due to lighter traffic at casual dining restaurants.
Pilgrim’s Pride Corp. got swept up in the knee-jerk reaction to this news, and I consider this major buying opportunity. Sanderson Farms is being cautious with its long-term outlook, but I just don’t see this applying to Pilgrim’s Pride. Thanks to a record bumper crop, corn futures are near a five-year low. This year, corn prices have fallen 23%; in 2013 corn prices plunged 40%. Persistently low corn and grain prices reduce feed costs for poultry producers like Pilgrim’s Pride.
Meanwhile, poultry prices continue to climb. In the U.S., chicken prices are up 5.6% over last year. In Mexico, the price of chicken has jumped 10%. Chicken prices have increased as a result of last year’s bird influenza outbreak and increasing beef and pork prices. In light of these facts (and the company’s strong sales and earnings prospects), I expect the stock to recover fully from the sell-off, and then some. This Moderately Aggressive stock is an excellent buy up to $30 per share.
Louis Navellier, Blue Chip Growth, www.bluechipgrowth.com, 800-718-8289, November 2014