Little Chicken on Sanderson Farms

The improved efficiencies at Sanderson Farms Inc.'s (SAFM - Snapshot Report) poultry complexes in Georgia and Mississippi, along with the new facility in Waco, Texas, should enhance improve unit operating costs and increase production levels in fiscal 2008. However, grain costs are expected to continue increasing. As a result, the construction of a new complex in Kinston, North Carolina has been delayed. The Hold rating is maintained.

The company produces a wide range of processed chicken products and processed and prepared food items, which enables the company to produce value-added products. Though construction is currently being delayed, the company plans to build a new feed mill, poultry processing plant, and hatchery in Kinston. The new complex at its full capacity will be equipped to process 6.7 million pounds of dressed poultry meat per week.

Due to the company's volatile earnings, the stock is best valued on a price-to-sales basis. During the last five years, the stock has traded in the range of 0.33 to 0.94 times sales. There is considerable commodity risk involved with the production of chicken products, both on the pricing of end-products and the costs of feed, processing, and storage. With stock currently trading at 0.41 times sales, the target is a 0.45 price-to-sales ratio or $36.25 per share.

Read the full analyst report on SAFM