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Pilgrim’s Pride (PPC) Poised for Growth Amid Headwinds


We issued an updated research report on the premium consumer goods company Pilgrim's Pride Corporation PPC on Oct 17, 2016. The Zacks Rank #3 (Hold) stock is currently surrounded by both optimistic and pessimistic aspects.

Bullish Factors on Role

Pilgrim's Pride has been successfully expanding its business on the back of its unique product diversification strategy. Product portfolio diversification shields the company from various industry specific headwinds. The company is currently trying to capture the growing market demand for natural food products such as organic and ABF chicken.

At the same time, demand for the company’s Pierce brand and a new, fully-cooked chicken product is also radically improving. These factors should boost the company’s revenues going ahead.

Apart from revenue growth, we believe that the company’s strategic cost-reduction moves would aid its margin growth trajectory in the quarters ahead. Moreover, the newly introduced portfolio model is expected to augment the company’s profitability.

Also, Pilgrim's Pride aims to maximize its productivity through other initiatives, such as enhancing labor efficiency, optimal water usage, methodical management of waste water and proper plant maintenance. Further, the company expects to accrue $185 million of operational improvement through cost savings and effective generation of cash flow by the end of 2016.

Existing Causes of Worry

Extensive industry rivalry has been augmenting the bargaining power of end-users, thereby enhancing market share loss risks for Pilgrim's Pride. In order to boost competency, the company makes huge investments in new growth projects or research and development. However, such costs add to its existing debt burden.

Pilgrim's Pride’s operational efficacy and product supplying capabilities both have been adversely affected by the sudden outbreak of livestock diseases within the meat industry. Moreover, outbreak of such epidemic diseases often raises the extent of government restrictions on the import and export of fresh chicken products. This increases the legal complexities of meat product producers.

Notably, earnings of Pilgrim's Pride remain highly sensitive to market price as well as availability of certain products such as soybean meal, corn and sorghum. Any sudden supply-demand imbalance or fluctuations in price of these materials might significantly raise the company’s operational expenses. This, in turn, would hurt the company’s bottom line in the quarters ahead.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

Sanderson Farms, Inc. SAFM currently sports a Zacks Rank #1 (Strong Buy). The company has a positive average earnings surprise of 25.01% over the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hormel Foods Corp. HRL and Tyson Foods, Inc. TSN carry a Zacks Rank #2 (Buy).

While Hormel Foods generated a positive average earnings surprise of 9.05% for the trailing four quarters, Tyson Foods has a positive average earnings surprise of 12.24% over the trailing four quarters.

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