Zhongpin Inc.

Zhongpin Inc. (HOGS), the China-based meat and food processing company, grew revenue by 41.5% in the first quarter and continued to surprise on estimates despite tough economic conditions. The stock is still cheap, trading at just 5.8x forward earnings.

Zhongpin distributes pork, pork products and fruits and vegetables in 20 Chinese provinces and 4 cities with special political status through over 3,097 retail outlets. The company also exports to the European Union and Southeast Asia.

4 Surprises in a Row

On May 11, Zhongpin reported first-quarter results which surprised on estimates by 10%. It was the 4th consecutive surprise in a row for the company. Net income was $9.7 million, or 33 cents per share, compared to $7.3 million, or 24 cents, in the year ago period. Analysts expected just 30 cents.

Revenue growth was fueled by demand for pork products as well as increased production capacity due to new facilities that were added in 2008.

Prepared meats were the strongest segment, jumping 83.3% to $22 million from $12 million a year ago. Chilled pork revenue climbed 56.9% while frozen pork grew 9.5%.

Fruits and vegetables are the smallest segment and accounted for just 1% of total revenue in the quarter. Revenue growth was flat compared to a year ago. However, a new production facility opened in April which will bring the total production up to 30,000 metric tons from 12,600 metric tons.

2009 Guidance Reaffirmed

In May, the company confirmed its 2009 EPS guidance in the range of $1.50 to $1.63 per share with revenue in the range of $780 million to $810 million.

Zhongpin doesn't expect the fears surrounding the swine flu to have a big impact on the year.

"While the pork industry experienced a negative impact in April due to the recent H1N1 virus outbreak in North America, we believe this impact will be short-lived," said Mr. Xianfu Zhu, CEO.

"In fact, as fears surrounding the virus have subsided and consumers are educated that the virus can not be contracted by consuming pork products, we have observed an increase in demand for pork and some firming of pork prices."

"As a result, we do not expect further negative impact from this issue on our revenue for the second quarter," he added.

Consensus Estimates Rise

Given the company's reaffirmation of guidance, covering analysts have been raising estimates for the full year. Consensus estimates climbed by 6 cents to $1.55 per share to be within the forecast range. Analysts expect year-over-year earnings growth of 31.36%.

Value Fundamentals

Zhongpin is a Zacks #2 Rank (buy) stock. It continues to have solid value characteristics. HOGS trades with a price-to-book of 1.54. It has a PEG ratio of 0.23. The company also has a stellar 1-year return on equity (ROE) of 20.71%.

Read the Nov 20, 2008 analysis.

Update to Previous Value Zacks Rank Buy Stocks

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RadioShack Corporation (RSH - Snapshot Report), the electronics retailer, surprised on estimates by 54.55% in the first quarter as flat-panel televisions continued to sell. The company has surprised 3 out of the last 4 quarters by an average of 14.76%. RSH is trading with a forward P/E of just 9.9. Read the May 29 analysis.