Analysts say USDA chicken purchase should boost Tyson stock price
by June 22, 2015 4:51 pm 198 views
A bonus purchase of dark meat chicken recently announced by the U.S. Department of Agriculture is expected to lift the share prices of Tyson Foods Inc., and its poultry competitor Pilgrim’s Pride, according to Farha Aslam, food analyst with Stephens Inc.
In a recent note to investors, Aslam said poultry company stocks typically see a three-month rally after USDA bonus purchases are completed.
Recent export bans of U.S. poultry in the wake of the avian influenza outbreak and a stronger U.S. dollar have all hurt the purchasing power of key foreign markets for U.S. goods.
The bonus purchase program is designed to stabilize prices that have weakened since nearly all U.S. chicken exports are leg quarters, according to the USDA.
The recent bonus buy announcement from the USDA did not provide the size or timing of the planned purchase except to say that a solicitation for leg quarters will be issued in the next few weeks.
Heather Jones, food analyst with BB&T Capital Market, notes that the USDA bonus buy will remove about 100 million to 125 million pounds of dark meat chicken, which represents between 55% to 70% of the cold storage inventories at this time. She doesn’t think the purchase will drive leg quarter prices higher, but that it will have a more stabilizing effect on market prices.
Georgia Dock wholesale prices for leg quarter were 46 cents a pound on Monday (June 22) down nearly 21% from the 56-cent price one year ago.
Aslam said these bonus purchases usually occur in August or September and the last bonus buy totaled $42.2 million in 2008.
Aslam reiterated her overweight rating for Tyson Foods and her overweight/volatile rating for Pilgrim’s Pride stock.
Shares of Tyson Foods closed Monday (June 22) at $42.23, up 21 cents on the day. For the past 52 weeks the Tyson shares have traded between $35.69 and $43.80. Year-to-date Tyson Foods shares are up 7.83%.
Pilgrim’s Pride shares closed Monday at $25.67, up 10 cents. This stock, a pure chicken play is down 21% this year.