KeyBanc Downgrades Sanderson Farms (SAFM) to Hold; Citing Recent Rise in Corn Prices
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KeyBanc downgrades Sanderson Farms (Nasdaq: SAFM) from Buy to Hold.
KeyBanc analyst says, "We are downgrading our rating on Sanderson Farms to HOLD and reducing our 4Q09 EPS estimate by $0.16 to $1.22 and FY10 EPS estimate by $1.10 to $3.49 owing largely to the recent rise in corn prices. While we expected continued chicken demand weakness and declining breast meat prices as a result of the weak U.S. economy in our note following SAFM's 3Q09 call (August 25), we also believed corn prices could fall by $0.40-0.60/bu in the months to come owing to a historically large corn crop. We thought such a decline in corn prices could lead to EPS upside in FY10. While the crop has been as large as we expected, corn prices have nonetheless moved up by about $0.50/bu since the end of August owing to higher speculative buying. Consequently, we are increasing our corn price assumption for FY10 to $4.00 (from $3.63), which decreases our FY10 gross margin estimate by 160 bps to 10.4% and our EPS estimate by $0.91.
"We would like to point out that we think SAFM is the best-managed U.S. chicken producer, and if/when industry fundamentals improve and SAFM's valuation does not adequately reflect that improvement, we would be inclined to become more constructive."
To see more analyst ratings on SAFM Click Here.
Sanderson Farms, Inc., an integrated poultry processing company, engages in the production, processing, marketing, and distribution of fresh, frozen, processed, and prepared chicken products in the United States.
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