Is Pilgrim’s Pride Stock a Buy?

Poultry producer Pilgrim’s Pride (NASDAQ:PPC) is often overlooked as an investment opportunity due to competition from larger rivals and having once declared bankruptcy.
 
However, the large chicken supplier may be worth a look in light of its recent earnings report. 

Pilgrim’s Pride Revenue, Earnings and Growth

In Q2, Pilgrim’s Pride reported net sales of $4.63 billion, up an impressive 27.3 percent from the previous year. The company also achieved GAAP earnings per share of $1.50, a solid beat against the $1.14 expected by analysts.
 
One of the most encouraging signs for the company in the report was growth in the sales of prepared products. This business line achieved 96 percent growth year-over-year, indicating strong consumer demand for prepared foods.
 
The company also continued its expansion into eCommerce, achieving double-digit growth through its online sales channel.

Beyond its financial metrics, Pilgrim’s Pride continues to invest in expanding production. In the quarterly report, management detailed a planned expansion of the company’s Athens, Georgia plant to meet the growing needs of an unnamed key customer.
 
Efforts to improve revenue and earnings from European markets were also proceeding well as the company implemented supply chain solutions in response to the ongoing Ukraine conflict.
 
Overall, the company’s prospects for continued growth appear sound. Ongoing investment in prepared foods and eCommerce, in particular, could yield good results in the years ahead.
 
Over the next 3-5 years, EPS is projected to grow at a compounded rate of 17.2 percent. Cash flow should also grow at about 16 percent in the next fiscal year.
 

Pilgrim’s Pride Target Price

Analysts currently expect Pilgrim’s Pride to reach a median price target of $34.50 over the next 12 months, gaining 14.8 percent from the current price of $30.05.
 
This median is remarkably close to the high estimate of $36, indicating a consensus that the stock will finish the next year within a relatively narrow range.
 
While not a massive gain, this return appears to be a reasonably safe proposition.
 

Pilgrim’s Pride Risks & Competition

The primary risk associated with Pilgrim’s Pride is its responsiveness to grain prices, which have been unusually high this year.
 
So far, Pilgrim’s Pride has been able to solve many of its supply chain issues and take pressure off of rising costs.
 
Despite the company’s solid execution, though, it is exposed to macroeconomic risks that investors should keep in mind.
 
Another issue for the company lurks on the balance sheet. Debt could be a financial drag for Pilgrim’s Pride.
 
The company’s current debt-to-equity ratio stands at 1.17. This is more than double the industry average of 0.42. While this isn’t necessarily a concerning debt level, it’s worth considering when deciding whether or not to buy the stock.
 
Pilgrim’s Pride competes directly with two other large chicken producers, namely Sanderson Farms and Tyson Foods.
 
As a dominant meat processor, Tyson is likely the stiffer of the two competitors and enjoys a substantial economic moat.
 
Tyson’s median target price is 13.1 percent above its current trading price, and the stock offers a dividend yield of 2.25 percent. As such, investors can expect Tyson and Pilgrim’s Pride to produce similar returns over the next 12 months.
 

Is Pilgrim’s Pride a Buy?

At first glance, Pilgrim’s Pride doesn’t have an outstanding buy argument behind it. While the company is growing steadily, investors can find better growth options in today’s market.
 
Pilgrim’s Pride could lag behind other stocks riding the wave of a rebounding market over the coming 12 months. The stock is up about 6.5 percent YTD, while many companies have given up ground in 2022. 
 
Where Pilgrim’s Pride does stand out, however, is in its valuation. The stock trades at a P/E ratio of just 7.26, heavily suggesting that it could be undervalued. Its price-to-sales and price-to-earnings-growth ratios are also both quite low at 0.43 and 0.42, respectively.
 
Together, these metrics make a strong case for undervaluation. Pilgrim’s Pride also has a slight edge over Tyson where valuation is concerned; Tyson trades at 9.09 times earnings. Taking its 3-5 year growth prospects into account, Pilgrim’s Pride is quite attractive as a value stock.
 
Interestingly, inflation could also be a bright spot for Pilgrim’s Pride. According to a recent statement by grain giant Archer-Daniels-Midland, consumers facing higher prices are making a noticeable switch from beef to chicken at the grocery store.
 
Given that the current inflationary environment is expected to last into mid-2023, stocks like Pilgrim’s Pride that can benefit from changing consumer choices look particularly attractive for investors.
 

The Bottom Line: Is PPC A Buy?

A final point in the buy case for Pilgrim’s Pride is the fact that the global poultry market is expected to continue growing at a modest but steady pace over the next several years.
 
Between now and 2026, the industry is expected to expand at a compounded annual rate of 8.9 percent. As a leading producer with an international footprint, Pilgrim’s Pride should be in a prime position to benefit from this continued growth.
 
Weighed against these positives, the relatively modest macroeconomic and debt risks Pilgrim’s Pride faces aren’t terribly concerning.
 
Competition from Tyson is still relevant, but the most recent earnings report shows that Pilgrim’s Pride is growing successfully in a market largely dominated by Tyson.
 
At present, there seems to be enough room in the poultry market for both of these companies to succeed without interfering with one another.
 
Pilgrim’s Pride is likely a good buy for more conservative investors looking for reasonably safe returns in an established, stable industry. It’s also a good choice for value investors due to its apparent undervaluation.
 
Pilgrim’s Pride edges out Tyson Foods on the value front, though investors seeking income from their portfolios may still want to consider Tyson for its dividend. While it may not explode in the short term, Pilgrim’s Pride is a stock to consider as a conservative long-term buy-and-hold asset.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.