Zacks Investment Research downgraded Pilgrim's Pride Corporation (PPC - Free Report) to a Zacks Rank #3 (Hold) from a Zacks Rank #2 (Buy) on Mar 21. Going by the Zacks model, stocks carrying a Zacks Rank #3 are likely to perform in line with the broader market in the quarters ahead.
Why a Neutral Stance?
Over the last three months, Pilgrim's Pride’s shares yielded a return of 14.33%, outperforming 1.97% gain recorded by the Zacks categorized Food - Meat Products industry.
Pilgrim's Pride intends to boost its near-term revenues on the back of rising demand for natural food products, including organic and Antibiotic-Free (ABF) chicken. Higher sales of organic and ABF chicken products are likely to bolster the company’s revenues in the quarters ahead. Pilgrim’s Pride plans to produce ABF chicken products in at least 25% of its facilities by the end of 2018.
The company also intends to augment its top-line performance on the back of diligent inorganic growth programs. For instance, the GNP Company acquisition (Jan 2017) is anticipated to drive chicken products’ sales. The stock’s projected sales growth is 4.64% for 2017 and 2.37% for 2018.
Furthermore, higher revenues and lower costs are anticipated to enhance the company’s profitability. Estimated earnings growth rate for the stock is 18.80% for 2017, higher than the Zacks categorized Food - Meat Products industry’s projected growth rate of 6.70%.
Notably, the Zacks Consensus Estimate for the stock remained unchanged at $2.06 for 2017 and $1.97 for 2018, over the last 30 days.
However, it should be noted that Pilgrim’s Pride’s profitability is highly sensitive to market price fluctuations as well as availability of certain products such as soybean meal, corn and sorghum. These items are used by the company as intermediate inputs in some of its offerings. Any sudden supply-demand imbalance or fluctuations in price of these materials might significantly escalate the company’s operational expenses, in turn, hurting its bottom line.
Moreover, the company conducts its business in a highly competitive industry. Intense competition increases the bargaining power of consumers and exposes the company to risks of market share loss. In addition, Pilgrim's Pride’s operational efficacy and product supplying capability are adversely affected by sudden outbreak of livestock diseases in the meat industry.
Stocks to Consider
Some better-ranked stocks within the industry are listed below:
Blue Buffalo Pet Products, Inc. has an average positive earnings surprise of 6.83% for the last four quarters and currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conagra Brands, Inc. (CAG - Free Report) carries a Zacks Rank #2 and has an average positive earnings surprise of 13.30% for the trailing four quarters.
Energizer Holdings, Inc. (ENR - Free Report) also holds a Zacks Rank #2 and has an average positive earnings surprise of 20.50% for the past four quarters.
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