Zhongpin Inc.

Zhongpin Inc. (HOGS) saw revenues soar 116% to a new record in the third quarter as the company continues to expand pork production. HOGS has surprised on estimates 3 out of the last 4 quarters on average of 7.25%. The company is cheap. HOGS is trading at only 5.7x forward earnings.

Company Description

Zhongpin is a Chinese-based meat and food processing company that handles pork and pork products as well as fruits and vegetables. The company operates in 24 provinces in China through over 2,960 retail outlets and also exports to the European Union, Eastern Europe, Russia, Hong Kong, Japan and South Korea.

Zhongpin has been expanding production. On Nov 7, it announced that its new prepared meat facility in the Henan Province, which was just starting production, would increase annual production capacity for meat products, including sausage and ham, by 114%.

The new facility was built in Zhongpin's existing industrial park which allows it to take advantage of existing logistics and infrastructure.

Revenue Surged 116% in the Third Quarter

On Nov 10, Zhongpin reported third-quarter earnings that surprised on Wall Street estimates by 13.33%. Net income rose 91% to $10.1 million, or 34 cents, from $5.3 million, or 23 cents per share in the year ago period. Analysts expected 30 cents per share.

Revenues jumped 116% to a record $153.8 million from $71.3 million in the third quarter of 2007. Sales from retail channels climbed 102% to $65.6 million from $32.5 million in the same period in 2007. Retail sales represent 43% of net sales.

The company added 35 new retail outlets during the quarter, including 7 showcase stores, 10 branded retail stores and 18 new supermarket counters.

Zhongpin Confirms 2008 Guidance

Zhongpin is still bullish about the rest of 2008 despite the slowing of the global economy. Pork consumption is expected to continue to grow in China's rural and urban areas as consumers seek out high quality and safe food products.

he company also believes that China's recent reforms to improve food safety in the rural areas should also provide it with further growth opportunities.

The company reaffirmed guidance of earnings per share in the range of $1.15 to $1.19 on revenues between $550 million to $570 million.

Consensus Estimates Rise

Given the company's optimistic guidance, covering analysts have been raising estimates. Fourth-quarter estimates are up 2 cents to 32 cents in the last 30 days. Full-year consensus estimates rose 6 cents to $1.19 in the last month, which is the high end of the company's guidance range.

Value Fundamentals

Zhongpin is a Zacks #1 Rank (strong buy) stock. It's trading at 5.7x forward earnings. HOGS price-to-book is 1.27. The company has a strong 1-year return on equity (ROE) of 20.02%.