BMO Upgrades Pilgrims Pride, Declares 'Winner Winner Chicken Dinner'

The bullish case for Pilgrim's Pride Corporation PPC is based on a combination of internal initiatives and external tailwinds, according to BMO.

The Analyst

BMO Capital Markets analyst Kenneth Zaslow upgraded Pilgrim's Pride from Market Perform to Outperform with a price target lifted from $31 to $36.

The Thesis

Pilgrim's Pride introduced multiple internal initiatives to improve its operations, including operational efficiencies and an improved product mix, Zaslow said. The company is the only of its kind to offer a complete suite of chicken products (big, tray, small, organic). Management's "Key Customer Strategy" resulted in revenue from notable clients doubling in size over the past eight years.

These strategies should become "more appreciated" by investors and lead to higher valuation as ongoing improvements will lead to greater margin recovery versus prior cycles, the analyst wrote in a note.

Zaslow said external factors likely to improve the chicken business include the African Swine Fever as it's only a matter of time before it impacts the chicken operating environment. Also, a shortage of U.S. beef production could support chicken and other protein prices from a fire at a Tyson plant. which accounted for 6% of all U.S. beef packing capacity.

Bottom line, multiple tailwinds will support chicken fundamentals and help Pilgrim's Pride generate higher earnings power in fiscal 2020 and 2021, the analyst said.

Price Action

Shares of Piligrim's Pride were trading higher by 5.1% Tuesday and hit a new 52-week high of $30.82.