uploads///Relative Valuation of Pilgrims Pride and Peers

How Is Pilgrim’s Pride Valued after 1Q16 Earnings?


May. 2 2016, Updated 1:07 p.m. ET

Valuation multiple

Valuation multiples help investors decide whether to enter or exit a stock. We’ll use the forward PE (price-to-earnings) multiple to compare the relative valuation of Pilgrim’s Pride (PPC) with its peers. A forward PE valuation multiple indicates how much an investor is willing to pay for the company’s next four quarters of EPS (earnings per share).

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Pilgrim’s Pride’s valuation rose after earnings

Pilgrim’s Pride is currently trading at a PE ratio of 12.4x, based on the next 12 months of EPS as of April 28, 2016. This is an increase of ~8% compared to its PE ratio of 11.5x before the earnings release. However, it’s valued lower compared to its peers. Analysts expect Pilgrim’s Pride’s earnings to decline 19% in fiscal 2016 with no growth in revenue, which justifies the lower PE ratio.

Among its peers, Hormel Foods (HRL) is trading at the highest forward PE ratio. Currently, it’s trading at 24.2x based on the next 12 month of EPS as of April 28, 2016. Analysts expect Hormel’s adjusted EPS to increase by 19% and revenue to increase by 3% in fiscal 2016.

Tyson (TSN) is trading at a PE ratio of 15.8x as of April 28, 2016. Tyson raised its fiscal 2016 EPS guidance to $3.85–$3.95 due to its strong results in the current quarter and its positive outlook for fiscal 2016. Analysts estimate a 29% rise in Tyson’s earnings in fiscal 2016. However, it’s trading at a lower PE ratio than Hormel. This can be justified because its revenue is expected to decline 10% in fiscal 2016 due to declining beef, pork, and feed prices.

Sanderson Farms (SAFM) is currently trading at a PE ratio of 12.3x as of April 28, 2016. Its earnings are expected to decline 31% in fiscal 2016. Revenue is likely to decline 1%.

ETF exposure

The PowerShares DWA Consumer Staples Momentum ETF (PSL) and the AdvisorShares TrimTabs Float Shrink ETF (TTFS) invest 2.2% and 1.2%, respectively, in PPC.

In the next part, we’ll see why analysts haven’t changed Pilgrim’s Pride’s recommendations.


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