Smithfield Foods (NYSE: SFD) is the world's largest pork processor and hog producer. The company's products include fresh pork and processed meats sold under the Packerland, John Morrell, Lykes, Patrick Cudahy, and Smithfield Premium names.
Analysts expect Smithfield's F2008 revenue to increase 15-25% after a modest increase in F2007.
Meanwhile, beef margins are expected to widen, offsetting likely narrower hog margins. An improved product mix, including an expansion of value-added products, also has gladdened analysts' hearts.
Further, there's ample room for market share improvement in SFD's 40 international markets, where demand is better than adequate. Moreover, international fundamentals, combined with an experienced sales staff, point to better-than-anticipated international revenue for the 2H 2008 and 2009. The Reuters F2008/F2009 EPS consensus estimates for SFD are $1.21/$1.72.
The risks? Analysts are keeping a close eye on Smithfield's feed costs, which are high and elevated, due to high and rising commodity prices. A decrease in access to foreign markets would also hurt SFD's results.
The First Call mean rating for SFD is: Buy [12 firms]. Mean 2008 target: $33 [high: $40, low: $24].
Stock Analysis: Smithfield Foods is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from SFD's shares. Sell / Stop Loss if you were to purchase shares in this company: $17.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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