(USA) Encouraged by improving chicken prices and margins, Wall Street analysts are ratcheting up expectations for Tyson Foods and Sanderson Farms in the new year. "Chicken fundamentals have reached an inflection point," said BMO Capital Markets' Kenneth Zaslow in a note to clients Friday.
Citing improving breast prices, record wing prices and a second straight month of better margins, Zaslow raised his fiscal 2010 earnings outlook and stock price target for Sanderson Farms. He now expects the company to earn $4.72 per share in 2010, up from his prior estimate of $4.39, and boosted his target on the stock to $53 from $47.
Sanderson, which continues to reduce non-feed costs, will benefit from the chicken recovery in 2010 assuming it does not lose its advantage in big birds, Zaslow said.
He predicted a resolution of the chlorine dispute with Russia in six weeks, and said egg sets should remain below 2008 levels through at least 2011.
Zaslow also said he expects Tyson Foods to exceed expectations in 2010 and 2011 due to ongoing discipline in beef, improving chicken fundamentals, internal improvements and deleveraging of its balance sheet.
Outperform
Credit Suisse raised its stock recommendation on Tyson Foods to "outperform" from "neutral" as well as its earnings forecasts based on higher chicken prices and lower corn and soybean prices. Tyson shares surged Thursday on the upgrade.
"While we clearly missed the bottom on Tyson stock, it is still under-owned, unloved, and in the early stages of a cyclical rebound in protein processing," analyst Robert Moskow wrote in a note to investors.
Credit Suisse on Thursday raised its fiscal 2010 earnings forecast to $1.05 per share, 6 cents above the consensus forecast of other analysts and raised its 2011 forecast to $1.20, which is 15 cents above consensus. It also boosted its stock recommendation to avaluation over the next six months and minimal risk."
Moskow pinned his optimism to commodity chicken prices exceeding expectations in December and January and starting 2010 up 17 percent from 2009. "While this level of increase won't last forever, we think it is a good indication that chicken processors have remained disciplined in terms of supply, perhaps due to tighter financing."
He also noted corn and soy futures fell this week after USDA announced corn and soybean crops were not hurt by wet weather in the fall as much as feared. He added that he believes there is another 40 cents per bushel downside to corn futures, which would boost Tyson's earnings by 20 cents per share.
Moskow predicted Tyson's Feb. 5 earnings announcement will exceed consensus forecasts. "We also believe that Tyson management will be able to point to improving yield, efficiency and labor metrics in its chicken business following the botched start-up of a small bird processing line in the September quarter. This will allay investor concerns that the operational turnaround of this division has stalled."
Source: Meatingplace
