Sanderson Farms Inc (SAFM), a poultry processing company, is a great investment. For the year 2017, it posted earnings of approximately $280 million from over $3.3 billion in revenue, that’s an EPS of $12.30. Quite impressive for its industry. It also has approximately $420 million in cash with only $300 million in total debt, not to mention a dividend yield of 1.01%. It is adequately capitalized and can weather any upcoming financial storms due to its strong balance sheet. It seems cheap due to its low P/E<10; this company is currently valued at $2.9 billion. Sanderson has been around since the 40s.
Tyson Foods, Inc (TSN), another poultry and animal processor, is a huge company. Last year, it posted earnings of over $1.7 billion from over $38 billion in revenue. That’s approximately an EPS of $4.80. Tyson also has approximately $300 million in cash but over $17 billion in total debt. It has a dividend yield of 1.61%. Although the debt seems phenomenal, I doubt that this $28 billion company will be affected by its competitors. Financial calamity could bring down its valuation, however, it has been around for years and will continue to operate in all financial environments. It has yet to cut its dividend and has been around since the 30s.
Pilgrim’s Pride Corporation (PPC), a $6.2 billion company, last year, posted earnings of approximately $440 million from approximately $8 billion in revenue or an EPS of $2.53. It also has approximately $400 million in cash with over $4.3 billion in total debt. It currently does not support a dividend yield because of restrictions governing its debt facilities that limit the amount of dividends the company can pay. Pilgrims too has a P/E<10, however, given its capital structure and lack of dividend payment, your capital would be better allocated elsewhere. Pilgrim’s has been around since the 40s.
We believe that Sanderson Farms is the way to go due to its capital structure, its earnings growth and consistent dividend but Tyson Foods poses a significant threat. Tyson does 10x the revenue of Sanderson and also maintains a consistent dividend and earnings growth. Tyson has more debt but can, has and will continue to service it. We will wait to see if these chicken companies drop further, increasing their yields and making their prospects plump for the taking.
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