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Will Pilgrim's Pride Maintain its Robust Momentum in 2020?

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Pilgrim's Pride Corporation PPC crushed the industry as well as the S&P 500 this year with its marvelous run. Shares of the company have more than doubled in the year-to-date period, while the industry grew 39.6%. Meanwhile, the S&P 500 has seen an increase of 27.8%. Pilgrim's Pride has been gaining momentum from its robust strategic initiatives, which have helped it counter hurdles in the European operations.

Sales from the European operations declined 1.7% during the third quarter of 2019, following a 4.8% drop in the preceding quarter. Further, the company continued to witness higher input costs in the region.

However, Pilgrim’s Pride is undertaking initiatives to mitigate the input-cost challenges by integrating them into the customer pricing models. Also, the company is largely gaining from strength in the Prepared Foods unit.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold). It has a VGM Score of A and a long-term earnings per share growth rate of a solid 19.3%.

Pilgrim's Pride Looks Solid

Pilgrim's Pride’s focus on key customers is a pathway for refining portfolio and gaining a competitive edge over its peers. Notably, revenues from key customers have more than doubled over the past eight years. Apart from this, the company has been steadily augmenting marketing support of its brands, as they expand and enter new regions. Additionally, the company resorts to frequent supply-chain improvements to enhance efficiency and reduce costs. The company’s dedicated efforts, including zero-base budgeting and positive impacts from acquisitions, are expected to create synergies.

Pilgrim's Pride has been gradually strengthening its competency on the back of business acquisitions. Recently, the company announced the acquisition of a West Midlands food manufacturer, Tulip, to further strengthen its position as a leading global player by expanding its prepared foods portfolio and brands. Earlier, Pilgrim’s Pride acquired GNP Company (January 2017) that is likely to continue bolstering sales in the upcoming quarters.

Notably, the company has been expanding in the fresh food offerings space to improve portfolio and solidify the competitive position. In fact, the launch of fresh chicken products under premium Pilgrim's brand has been receiving favorable consumer response. Further, the company is on track to expand gluten-free products and expects organic products (including No-Antibiotics-Ever products) to account for nearly 40% of the U.S. fresh portfolio in 2019. Additionally, the company has been expanding breast meat portioning capabilities to mitigate its exposure to the volatility of the pure commodity market.

These upsides have been backing Pilgrim's Pride. Also, we are particularly encouraged about the company’s Prepared Foods business, which is growing under brands such as Premium Pilgrims and Del Dia. These brands are gaining from favorable consumer acceptance. Volumes in this category grew double digits in the United States during the third quarter of 2019 on continued investments in R&D and sales as well as marketing of new products. Additionally, the company is rolling out a number of new technologies to become the first digital chicken company.

We believe that such factors are likely to help Pilgrim's Pride remain in investors’ good books.

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