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Pilgrims Pride Corp PPC

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Shares of No-Moat Pilgrim’s Pride Go Hog Wild on Takeout Proposal From JBS but Still Offers Upside

Analyst Note

| Rebecca Scheuneman, CFA |

Brazil-based JBS, 80% owner of no-moat Pilgrim’s Pride (which it purchased out of bankruptcy in 2009 for $800 million), has offered to acquire the remaining 20% stake for $26.50 per share. JBS seeks to simplify its corporate structure by delisting Pilgrim’s as a public company, allowing for a reduction in administrative expenses and an increase in operational flexibility. The proposal equates to an $8.4 billion enterprise value, 6.3 times our 2022 EBITDA estimate and 6.5 times that of FactSet consensus. However, we view this as a light offer, particularly when compared against the 9.1 times Sanderson Farms agreed to be purchased for earlier this week by Cargill and Continental Grain Company. We maintain our $32 per share fair value estimate for Pilgrim’s, which implies an enterprise value to EBITDA of 7.5 times and is underpinned by our long-term expectations for 2%-3% annual sales growth and 7%-8% operating margins. Shares of Pilgrim’s popped more than 20% on the news to above $27, suggesting investors also think there could be upside to the offering.

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Company Profile

Business Description

Pilgrim's Pride is the second- largest poultry producer in the U.S. (62% of 2020 sales), Europe (27%), and Mexico (11%). The 2019 purchase of Tulip, the U.K.'s largest hog producer, marks the firm's entrance into the pork market, which represented 11% of 2020 sales. Pilgrim's sells its protein to chain restaurants, food processors, and retail chains under brand names Pilgrim's, Country Pride, Gold'n Plump, and Just Bare. Channel exposure is split evenly between retail and food service, with the majority of food-service revenue coming from quick-service restaurants. JBS owns 80% of Pilgrim's outstanding shares.

1770 Promontory Circle
Greeley, CO, 80634-9038
T +1 970 506-8000
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 26, 2021
Stock Type Slow Growth
Employees 54,700


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