September 23, 2008


JP Morgan rates three US chicken producers, poultry sector

The US chicken industry faces too many risks amid slowing domestic demand, according to JP Morgan Securities, which also initiated coverage of three chicken producers.


Tyson has been given an "overweight rating", Pilgrim's Pride received a "neutral" rating while Sanderson Farms has an "underweight rating", said analyst Ken Goldman.


Goldman expects chicken exports to suffer if the dollar strengthens and if Russia limits chicken imports.


In a note to clients, Goldman said they wonder if production cuts are sustainable and sufficient to drive margins back to historical norms.


Russia is the largest market for US poultry exporters. Last year, the US shipped nearly US$1 billion worth of poultry and other meat products to Russia.


Goldman said Pilgrim's Pride is at more risk than Tyson as the latter is less focused on chicken and has large, profitable pork and beef businesses for backing.


However, Pilgrim's Pride has a solid business model and is poised for continued growth in the longer-term, Goldman added.


Sanderson Farms is expected to be hurt more than Pilgrim's Pride or Tyson, as 25 percent of its exports go to Russia who has said it would cut chicken imports, Goldman said.

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