Thursday, March 30, 2006


In a recent issue of Grant's (a very well known newsletter), they highlighted the chicken industry and it had some good points. They mainly talked about two companies: Gold Kist and Sadia. They feel that the chicken industry is near a bottom and it's worth taking a look into these two companies. Gold Kist is a pure chicken play and it has an advantage over some of its competitors because of their balance sheet. Many chicken producers have a lot of long term debt when compared to cash levels, but Gold Kist has an even amount. They currently have $143 million in long term debt and about $145 million in cash.

Sadia is a little bit different because it's a Brazilian company (and has also had a nice run-up while the other companies have been declining). They have lower costs, which is another advantage, and have captured a good amount of the Asian market. Grant's hypothesizes that they may capture even more market share in Europe and parts of the Middle East.

On a normalized earnings range between 8 and 12 for the chicken industry, Grant's thinks Gold Kist and Sandia are cheap. Sandia is around 6 to 7 realizable earnings, whil Gold Kist is a bit higher. According to Yahoo Finance Sandia has a 6.2% yield, but their dividend seems to fluctuate quite a bit so I doubt this is a reliable number.

1 comment:

NO DooDahs said...

You might be interested in IBA, SAFM, and PPC.