March 28, 2011
 

Tyson and Smithfield's stocks upgrade due to strong exports

A surge in export demand for pork and beef will increase profit margins at Tyson Foods and Smithfield Foods, according to an analyst who upgraded both stocks to buy on Thursday (Mar 24).

The earthquake in Japan and subsequent radiation contamination fears should fuel more demand for red meat imports, supported by yen appreciation, another analyst added. In addition to the disruption in livestock production in Japan, cold storage inventories were compromised due to power loss.

"The magnitude of these factors is unclear, but some meaningful lift in demand in that market seems assured," the second analyst said.

China, the world's largest pork producer with a market hog inventory five times the size of the US herd, is facing disease outbreaks and a feed additive contamination problem at the country's largest processor. "If current disease running through China's herd is materially worse than the country is letting onto, this could have significant implications for US exporters," the second analyst added.

Tyson and Smithfield's pork and beef margins are also benefiting from productivity initiatives and stable domestic demand, she said. On the chicken side of Tyson's business, industry production cuts are likely by summer, she added.