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Pilgrim’s Pride (PPC) to Buy GNP Company, Boost Performance

Zacks

Pilgrim's Pride Corporation PPC recently inked a definitive agreement to acquire renowned branded chicken products provider in the Upper Midwest – GNP Company. The transaction is valued at an all cash payment of $350 million. The proposed deal is currently subject to regulatory procedures and is likely to be closed by first quarter of 2017.

Over the last 30 days, Pilgrim's Pride stock recorded a negative average return of 16.21% – weaker than the Zacks-categorized Food-Meat Products industry’s negative average return of 13.73%. Whether the latest buyout can turn the tables for this Zacks Rank #3 (Hold) stock remains to be seen as Pilgrim's perceives to boost adjusted earnings in 2017 and bring about cost synergies worth $20 million from the deal.

Deal Benefits

Pilgrim’s Pride intends to improve its existing product portfolio, expand business in new markets and widen customer base on the back of the acquisition. For instance, inclusion of GNP Company’s Just BARE Certified Organic and Natural/American Humane Certified/No-Antibiotics-Ever (‘NAE’) product lines would help the acquirer to cater to the growing demand for organic chicken products.


The company intends to enhance its production process and strengthen its overall operational performance by adopting GNP Company’s inimitable technologies, such as automated deboning, aeroscalding and gas stunning.

Moving Ahead

Pilgrim’s Pride predicts that the aforesaid buyout would augment its adjusted earnings in 2017. The acquisition would fortify the company’s financial position, capital structure and cash flow performance going ahead. Also, the move is estimated to create roughly $20 million in annualized cost synergy, primarily due to the optimization of purchases, production, logistics and marketing activities. Furthermore, Pilgrim’s Pride anticipates nearly $28 million tax savings (in terms of current value) and post synergies Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) multiple of 3.9x from the buyout.

Our Take

Although headwinds like unfavorable input prices and a stronger U.S. dollar are currently hurting Pilgrim’s Pride’s performance, we expect it to display growth on the back of meaningful inorganic programs, operational efficacy and higher demand for organic food products.

Pilgrim’s stock was valued $18.30 per share as of Nov 29, 2016.

Over the last 30 days, Zacks Consensus Estimate for the stock has remained unchanged for both 2016 and 2017, reflecting brokers’ neutral stance.

Stocks to Consider

Some better-ranked stocks from the same space are Dean Foods Company DF, Blue Buffalo Pet Products, Inc. BUFF and Carriage Services, Inc. CSV.

Dean Foods Company delivered an average positive earnings surprise of 5.44% over the four trailing quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Blue Buffalo Pet Products, Inc. currently carries a Zacks Rank #2. It posted an average positive earnings surprise of 10.40% over the last four quarters.

Carriage Services, Inc. currently carries a Zacks Rank #2. The company delivered an average positive earnings surprise of 0.74% over the trailing four quarters.

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