April 16, 2008

BB&T recommends investors to buy Smithfield stocks
 

BB&T Capital Markets has raised its stock recommendation of Smithfield Foods to 'buy' from 'hold' based on recent strong pork exports and increasing sow slaughter.

Sow slaughter has increased to 3.2 percent of total hog slaughter compared to 2.8 percent at the beginning of the year, said BB&T in a note to investors.

BB&T also expects Canada's swine culling program, which began on Monday (April 14, 2008), to cull pregnant sows aggressively. BB&T also notes that Smithfield has converted hog slaughter capacity to sow slaughter.

Exports have surged due to the weak US dollar, low pork prices and strong international protein demand, said BB&T. Pork export growth in January is up 27 percent from a year ago, while it soared to 57 percent in February.

BB&T said current challenges include the US$45 to US$50 per hog loss that producers suffer.

BB&T also reduced its fiscal 2009 earnings forecast of Smithfield to 73 cents per share from US$1.25 due to lowered expectations for the first quarter. It estimates that 2009 hog prices will be at US$51 per hundredweight when compared to a production cost of US$53 per hundredweight.

However, BB&T assumes that Smithfield has favourable hedges in place, which would definitely help the company.