Zacks Investment Research upgraded Pilgrim's Pride Corporation PPC to a Zacks Rank #3 (Hold) from a Zacks Rank #5 (Strong Sell) on Dec 29, 2015. Going by the Zacks model, stocks carrying a Zacks Rank #3 are likely to perform in line with the broader market over the next few quarters.
Why on Hold?
Pilgrim's Pride makes concerted efforts to expand its margins through reduction of operational costs. Moreover, the company undertakes other initiatives to enhance labor efficiency, optimize water usage, methodically manage waste water and properly maintain plants, so as to maximize its overall productivity. Further, the company’s cost of sales is declining over time, which is expected to boost its aggregate gross margin in the near future. Also, going forward, the company expects to reap $200 million from effective cost-savings and cash flow generation.
However, Pilgrim's Pride conducts its trade in a highly competitive market and this reduces its control over the product prices, which may trigger loss in market share, and fall in sales and operating margins in the near term. Moreover, the company’s international operations are exposed to risks associated with market headwinds such as unfavorable currency fluctuation.
Various cases of bird flu infection reported in Minnesota, Oregon, Washington, Arkansas, Idaho and California are posing serious problems for meat producers like Pilgrim's Pride that mainly depend on the chicken segment for revenues. At the same time, the company’s earnings remain highly sensitive to the market price as well as availability of certain products such as soybean meal, corn and sorghum.
Stocks to Consider
Better-ranked stocks in the industry include Hormel Foods Corporation HRL, Sanderson Farms, Inc. SAFM and Tyson Foods, Inc. TSN. All three stocks hold a Zacks Rank #2 (Buy).
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