Morgan Stanley Maintains UW Rating on Sanderson Farms

Morgan Stanley is maintaining its Underweight rating on Sanderson Farms, Inc. SAFM while providing a few comments on the stock. “The company remains unhedged past July, and at current corn and soybean meal futures prices, we estimate that pricing must increase 8.3% in F2012 for Sanderson to achieve a 7.1% margin (its average over the last ten years) and 13.2% for it to earn the 10.9% margin it achieved in F2010,” Morgan Stanley writes. “We see this as a tough bogey given that weights are up more than egg sets are down in last two weeks and weights will likely increase even more when they lap very low (heat-induced) 2010 weights this summer. “Further, MS Commodity forecasts imply another $1.30 of downside to our F2012 EPS estimate. Nonetheless, we are raising our F2011 EPS estimate from -$3.25 to -$1.75 to account for favorable hedges Sanderson opportunistically put on during the Tsunami dislocation in March (i.e., low quality and likely to push cuts out).” Sanderson Farms closed Tuesday at $45.13.