Pilgrim's Pride Shares 'Likely Will Outperform,' According To BMO

BMO said Pilgrim's Pride Corporation PPC likely will outperform its peers and improve its relative positioning over time, despite the company having reported second-quarter earnings of $0.58, which fell short of consensus by $0.07.

BMO, who has a Market Perform rating on the stock, said Pilgrim's Pride would benefit from structural changes to product mix, operational profile and capital deployment.

The brokerage noted that the chicken margin outlook appears favorable, with relatively muted supply growth and improved export outlook. BMO expects chicken margins to continue to improve in 2016 and to remain at least flat in 2017.

"PPC's diversified portfolio is likely to continue to outperform the market, reflecting flexibility between small and big bird production, prepared foods investment, lower leg quarter exposure, and organic/antibiotic free expansion," analyst Kenneth Zaslow, wrote in a note.

Related Link: Pinnacle Foods Earnings Review Served Up By UBS

Meanwhile, the company's operational excellence and aggressive cost controls are expected to improve margins, while Mexico operations create selective pockets of growth.

On the shareholder returns front, the analyst noted that strong cash flow generation and underutilized balance sheet (<1x net leverage) — even after its $2.75/share special dividend — continue to allow potential share repurchases and acquisitions.

However, the analyst cut his 2016 EPS view to $2.09 from $2.17 to reflect the second-quarter results.

"We retain our Market Perform as our $27 price target does not justify an Outperform given the stock's history of volatility," Zaslow added.

At the time of writing, shares of Pilgrim's Pride were down 0.67 percent to $23.58.

Full ratings data available on Benzinga Pro.