Barclays On Meat Processors: Bullish Tyson, Hormel; Neutral On Sanderson, BRF

Barclays initiated coverage on a new sector, Americas Agribusiness, Tuesday with a Neutral rating.

Analyst Benjamin Theurer individually initiated coverage of Tyson Foods, Inc. TSN, Hormel Foods Corp HRL, Sanderson Farms, Inc. SAFM and BRF SA (ADR) BRFS.

Despite a Neutral industry view, there are several short-term dynamics that bode well for agricultural product-related food companies:

• Low feed costs.
• Improving global and domestic demand.
• Near-term supply constraints on Australian beef.
• Weakened demand for Brazilian-produced foods due to health concerns.
• Input costs in 2017–2018 look most favorable to beef production, followed by pork and poultry, Theurer noted.

Tyson Foods

Coverage for the company initiated at Overweight with a $70 price target. Tyson Foods has the “best combination of growth, margin expansion, and shareholder return,” said Theurer. It also benefits from its exposure to all three major proteins and focus on growing its prepared foods business.

Hormel Foods

Theurer initiated coverage at Overweight with a price target of $38. Of the four, Hormel Foods has the least exposure to commodities and highest profitability thanks to its diversified food preparation business and value-added products.

Sanderson Farms

The company received an Equal-Weight rating with a $125 price target. Despite its well-established poultry business and recent export diversification, the analyst believes margins are likely to contract in coming years.

BRF

Coverage for BRF initiated at Equal Weight with a $14 price target. Although a global player, the Brazilian company is highly exposed to health and meat-packing concerns from the U.S. and other countries, and will likely face significant pressure in the short-term.

Related Links:

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