J.P. Morgan Discusses Smithfield-Campofrio Deal (SFD)

J.P. Morgan Chase & Co. has a Neutral rating and a $23 price target on shares of Smithfield Foods, Inc. SFD. In a note to clients, J.P. Morgan writes, "Smithfield (SFD – Neutral) announced yesterday its intention to lift its stake in European packaged meats company Campofrio (CFG – Neutral, covered by J.P. Morgan consumer credit analyst Kati Ruci) to 87% from the current 37%. Our rough analysis suggests that the deal may not be very dilutive, if at all, if mostly debt is used. Though we are surprised that SFD, which last week reiterated its commitment to paying down debt, is looking to spend over $700MM on an acquisition, the deal may not take debt much above 2x EBITDA. On a fundamental level, it is difficult to get too excited about any consumer company in struggling Western Europe, but we think that Campofrio can be an attractive asset and that the price/share is not unappealing." Shares of SFD lost 69 cents yesterday to close at $23.35, a loss of nearly 3%.