We came across a short thesis on Pilgrim’s Pride Corp (NASDAQ:PPC) on ValueInvestorsClub by GLSV. In this article we will summarize the bears’ thesis on PPC. The company’s shares were trading at $43.07 when this thesis was published, vs. closing price of $45.39 on Dec 31st.
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Pilgrim’s Pride Corp (NASDAQ:PPC) is the second largest poultry producer in the US, UK and Mexico, primarily selling to chain restaurants, food processors, food distributors, and retail chains. The company is vertically integrated and oversees most aspects of production from breeding to distribution, while partnering with farmers for grow operations. The UK and European arms also include pork operations as a result of the 2019 acquisition of Tulip.
The primary argument of the bears consists in the cyclical and commoditized nature of the product – the author believes that throughout 2024, PPC has been experiencing above-average earnings, largely due to an unusual chicken cycle resulting from changes in genetic breeds. Consequently, as the industry starts responding to price and margin incentives, the increased supply of a relatively commoditized product is likely to push poultry prices down. This issue could be further exacerbated by leading suppliers solving some of their breeding problems, arising from a shift to new bird genetics, thus further increasing their hatch rate and slaughter rate. As a result, the pricing pressures would naturally result in smaller revenue growth and thinner margins for PPC.
All in all, the author forecasts a 10% decline in US chicken pricing and US margins reverting to normalized 6-8% range, which coupled with a target P/E of 10.0x could result in a target price of $27.00 per share of Pilgrim’s Pride Corp (NASDAQ:PPC), or -41% downside from the current stock price.
While we acknowledge the potential of PPC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PPC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.