BB&T Upgrades Smithfield Foods To Buy (SFD)

BB&T Capital Markets is out with a note, where it upgraded Smithfield Foods, Inc.

to “buy” from “hold”; it also set a price target of $19.00 on the stock. BB&T mentions, “Pork inventories were down nearly 30% yr/yr in June and at their lowest June levels since 2004. Importantly, demand is solid, as reflected in very strong cutout values. Pork prices have helped pull live hog prices higher. In our view, this indicates that strong hog pricing is not just a reflection of tight supplies, but also solid demand.” The analysts at BB&T Capital Markets also noted, “We calculate that industry packer margins are currently close to $10-$15/head, up considerably from year ago levels. Product pricing has more than offset the rise in hog costs and we believe that SFD will be able to maintain strong profitability in its pork segment, particularly given cost improvements made to this operating segment. We expect FY’11 packaged meat profits of $0.12/lb and have forecasted packer margins in the high single digits on a per head basis.” Shares of SFD are currently trading at $14.81, up 37 cents on the day.