Pilgrim’s Pride stock follows Tyson Foods, set to rebound

During the past quarter, some news hit the agriculture sector to help the businesses operating within it and relieve some of the inflationary pressure on American consumers. The price of soybeans, according to the ECM Group NASDAQ: ECM, fell from the November high of $480.0 to today’s $332.0 level; that’s a drop of 30.8%!

As a result, by increasingly relying on soy-based feed, chicken feed has become much cheaper for farmers and meat product companies. In this way, traders looked at the first stock that came to mind after this newfound margin expansion due to the lower cost of feeding chickens, Tyson New York Stock Exchange: TSN. You can also see the real-time bias in how the stock has rallied 38.6% in the last quarter.

Even though it also rose by 52.6% in the same period of time, Pilgrim’s pride NASDAQ:PPC is riding the same uptrend. While some may be afraid to consider buying a stock that has already “exploded,” the market suggests there may be one last push to squeeze in the upcoming earnings announcement, but more on that later.

First, get this down

The market is now getting ahead of itself when it comes to expectations of interest rate cuts by the Fed, which were announced earlier this year and are expected to be implemented for the first time by March. This probability is now almost zero and traders are evaluating these potential cuts much later, such as May or June.

You can see this change live by following the FedWatch tool available from the CME Group. So what does all this mean for titles like Pilgrim’s Pride? Since it is considered a low beta stock of 0.78 (moving less aggressively than the overall market), traders and investors facing the uncertainty of the Fed’s timing may look to these safer names.

Another way to classify this stock is to place it alongside other names considered “defensive” due to their behavior usually immune to the cyclicality of consumers and other activities. In simpler terms, these are called basic consumption activities.

So, since interest rates typically drive the business cycle, and an uncertain direction and timing from the Fed can cause indecision about where the next phase of the cycle might be, it is the Consumer Staples Select Sector SPDR Fund NYSEARCA: XLP this will likely attract investment dollars looking to squeeze out easy returns while the Fed makes a decision.

Because of these dynamics currently seen in the stock market, some institutions have found room for their purchasing power in Pilgrim’s stock, perhaps expecting management to not only announce improved earnings per share in the coming days, but also guidance for even better growth ahead of the stock market. year thanks to the increase in margins.

The players are arriving now

While analysts at competitor Tyson were forecasting net EPS growth of 58.5% over the next twelve months (excellent for a company in this sector), insiders are shedding some of their shares, which is not never a good sign. Noel W. White, director, sold 9,000 shares as of Feb. 20 for a net transaction of $484,000.

On the other hand, they are similar investment houses Morgan Stanley NYSE:MS AND Barclays New York Stock Exchange: BCS who started increasing their positions in Pilgrim stock this month, considering that the big move has already happened since 2023, this late buying in the momentum may be a confirmation of further expectation for a higher ceiling.

Would it be a surprise to learn that analysts at Barclays and BMO Capital Markets have increased their price targets to $27.0 and $28.0 per share, respectively? Of course, these represent a disadvantage compared to today’s stock price, but keep in mind that these targets were set in the third quarter of 2023, even before chicken margins started to grow.

Now that margins have not only increased over the last two quarters, but that management will likely express a positive outlook for the company in the coming months, it wouldn’t be too far-fetched to think that these same analysts will once again raise their price targets to reflect the right upside that can be achieved with this name.

One final thing to keep in mind is that despite having rallied fantastically over 50.0% over the last two quarters, Pilgrim stock is still trading at a discount to Tyson on a P/E basis. A valuation of 18.8x P/E would get you an 18.0% discount to Tyson’s 22.9x P/E. Ready to bridge the gap?

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