UPDATE: BMO Capital Markets Reiterates Market Perform Rating, Raises PT on Pilgrim's Pride Corporation
In a report published Monday, BMO Capital Markets reiterated its Market Perform rating on Pilgrim's Pride Corporation (NYSE: PPC), and slightly raised its price target from $5.00 to $6.00.
BMO Capital noted, “Unquestionably, PPC has made tremendous strides in becoming a better operator in terms of 1) cost structure; 2) shift toward market-based contracts; 3) better analytics to focus on profits across the whole bird; 4) an extensive export program; and 5) sourcing of corn from South America. Yet, we remain on the sidelines given our view on the US chicken recovery and the volatility associated with its Mexico profits. First, US chicken companies, particularly PPC, are better positioned to weather the weak margin environment through improved efficiencies and non-US chicken operations. Ironically, it creates a stalemate across the industry as the current positive but uninspiring margin structure may extend longer than expected (fewer chicken companies need to cut production, unless corn has another pronounced move). Second, public chicken companies appear to agree that production will contract 2%-3%, yet neither TSN nor PPC (estimated 35%-40% of the industry) has any intention of (or need to) cutting production, requiring a 4+% cut by the remainder of the industry. Third, despite the benefit from lower feed costs in its Mexico operations in the near term, higher corn prices likely will pressure PPC's Mexico profits by mid-2013.”
Pilgrim's Pride Corporation closed on Friday at $5.32.
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