Photo: Food Inc.
So are all the concerns priced in?
Not yet, says Morgan Stanley analyst Vincent Andrews. From his note to clients, he lists four reasons why he has underweight ratings on Sanderson and Tyson:
We believe the market has yet to fully discount: 1) The severity of corn’s impact to EPS; 2) The challenges the industry faces in raising chicken prices; 3) The risk that higher grain prices last longer and push normal EPS out further; and 4) “Normalized” EPS for SAFM is not $5+. SAFM has earned ~$1.30 on average since F2008 and ~$2 since F2003. When SAFM shares have seen support in the upper $30s in the past, it has come when the market could see a clear near-term path back to “normal” EPS. Today, we are only ~6 wks past the last margin peak, margins are set to worsen from here before bottoming in December (or later), and the risk is skewed unequivocally to the downside.
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