Analyst Note| Rebecca Scheuneman, CFA |
The year is off to a great start for no-moat Pilgrim’s Pride, with food service volumes (around 50% of sales) returning to prepandemic levels while retail demand remains solid despite rising inflation, as chicken is considered a cheaper alternative to other proteins. The firm recorded impressive sales growth of 30%, outpacing our 11% expectation for the full year. Labor shortages and low hatchability rates have resulted in product shortages, driving chicken prices higher, and we think Pilgrim’s may continue to benefit from pronounced disequilibrium in the market in the short run. Moreover, avian flu has begun to spread among global flocks, potentially limiting future supply, although the impact has been rather immaterial to date. Even so, we don’t plan to alter our $36 fair value estimate materially due to significant uncertainty around cost inflation and additional COVID-19 outbreaks, which could disrupt coming quarters.