Poultry stocks increase with optimistic outlook
producers in the US can breathe a little easier thanks to an analyst who
last week gave the sector a 'guardedly optimistic' outlook, leading to increased
share prices for many companies.
The industry has been facing pressure as fears
flu have cut demand, leading to oversupply.
But Stifel Nicolaus
analyst Oliver Wood is recommending that investors build a position now while
share prices are low.
"Our optimism is based on our expectation that
production cutbacks during the summer of 2006 as well as solid international
demand for US chicken will support upward momentum in wholesale chicken prices,
which underlie company earnings," he wrote in a research note to
However, he warned that fears that avian flu might spread in
the US could still lead to a decline in chicken demand, both domestically and
Pilgrim's Pride, the second largest US poultry
producer, was given a "buy" rating, because the company's shift away from turkey
products toward chicken will result in more stable earnings. Sanderson Farms
also received a "buy" rating, because of above-average margins and a strong
balance sheet. Gold Kist, the third largest US poultry processor, received a
"hold" rating. Tyson Foods, the largest US poultry producer, which also
processes beef and pork, also received a "hold" rating, because of concern that
an oversupply of beef will negatively impact earnings.
All of these
companies' shares edged up on the stock market following the release of the
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