Why This Analyst Is Bullish For Tyson Foods, Pilgrim's Pride And Sanderson Farms

The bullish case for Tyson Foods, Inc. TSN, Pilgrim's Pride Corporation PPC, and Sanderson Farms, Inc. SAFM is based on improving fundamentals in the food category, according to Stephens.

The Tyson, Pilgrim's, and Sanderson Analyst: Ben Bienvenu upgraded:

Tyson Foods' stock from Equal-Weight to Overweight with a price target lifted from $64 to $80.

Pilgrim's Pride from Equal-Weight to Overweight with a price target lifted from $20 to $25.

Sanderson Farms from Equal-Weight to Overweight with a price target lifted from $135 to $170.

The Tyson, Pilgrim's, and Sanderson Thesis: Tyson, Pilgrim's, and Sanderson have lagged in other segments in recent years, but are now poised to benefit from improving pricing trends in the food category, Bienvenu wrote in the note. Specifically, strong global demand for corn and soybeans should result in elevated grain prices through at least 2022.

The higher grain prices could translate to a step back in protein production in the near-term and generate higher protein prices in 2021.

Related Link: Tyson, Pilgrim's Pride Strike Deal To Settle Price-Fixing Allegations

The three companies have another catalyst ahead as consumer demand to dine-in could result in more "pronounced pricing" as COVID-19 restrictions continue to ease and the foodservice channel scrambles to secure supply.

Also, expectations for rising beef prices over the next few years amid lower cattle headcount represents another potential catalyst for cheaper alternatives, especially chicken.

Finally, among the three names, Tyson's valuation offers investors the "most attractive" entry point at around 1.5 times price-to-book.

TSN, PPC, SAFM Price Action:

Shares of Tyson Foods were trading higher by 2.5% at $67.87.

Shares of Pilgrim's Pride were trading higher by 6.1% at $22.39.

Shares of Sanderson Farms were trading higher by 5.6% at $148.15.

(Photo by Hans Eiskonen on Unsplash)