Sanderson Farms (
SAFM) is the 4th largest poultry processing company in the U.S. The improved efficiencies at the company's poultry complexes in Georgia and Mississippi, along with the new facility in Waco, Texas, should improve unit operating costs and increase production levels in fiscal 2009.
However, grain costs increased substantially in fiscal 2008 resulting in a loss. Even though grain prices have declined, the Hold rating is maintained.
Due to the company's volatile earnings and losses reported in fiscal 2006 and 2008, the stock is best valued on a price-to-sales basis. During the last five years, the stock has traded in the range of 0.26 to 0.94 times sales.
There is considerable commodity risk involved with the production of chicken products, both on the pricing of end-products and the costs of feed, processing, and storage. With stock currently trading at 0.44 times sales, the target is a 0.47 price-to-sales ratio or $38.75 per share.
