Upcoming Challenges Expected To Strain Poultry Industry's Performance

Key Takeaways

• Increasing U.S. revenues through pricing power and product growth highlights strong consumer demand and investor confidence in continued revenue growth.
  
• Expansion and sustainability focus in Europe and Mexico could enhance market position and improve long-term financial stability.
  
• Pilgrim's Pride's strong financial performance, driven by operational excellence and strategic diversification, suggests potential resilience and growth across global markets.

Catalysts

Produces, processes, markets, and distributes fresh, frozen, and value-added chicken and pork products to retailers, distributors, and foodservice operators.

• Pilgrim’s Pride is experiencing a significant increase in U.S. revenues, driven by higher commodity chicken pricing and growth in Case Ready and Small Bird segments, suggesting investors expect further revenue growth due to pricing power and consumer demand.
  
• The company is focused on enhancing production efficiencies and driving innovation through extensive product launches, which could improve net margins by optimizing operational costs and increasing consumer appeal.
  
• Expansion efforts in Europe, characterized by managed manufacturing network restructuring, could bolster earnings as they increase agility, enhance synergies, and capitalize on consumer confidence.
  
• Pilgrim’s Pride is investing in sustainable growth and capacity expansion, particularly in prepared foods and strategic markets like Mexico, which may support revenue growth and strengthen long-term market positioning.
  
• The company’s commitment to improving operational excellence and diversifying its portfolio against input costs, while aligning with key customers' demands, suggests an expectation of stable or increased net margins and earnings in the future.

Pilgrim's Pride Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Pilgrim's Pride's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.5% today to 3.8% in 3 years time.
• Analysts expect earnings to reach $696.5 million (and earnings per share of $3.17) by about December 2027, down from $985.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.7x on those 2027 earnings, up from 12.2x today. This future PE is lower than the current PE for the US Food industry at 20.5x.
• Analysts expect the number of shares outstanding to decline by 2.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Pilgrim's Pride Future Earnings Per Share Growth

Risks

• Pilgrim's Pride reported strong financial performance with a 5.2% increase in net revenues to $4.6 billion and a substantial improvement in adjusted EBITDA margins, driven by operational excellence and strategic partnerships. This could indicate future revenue growth and margin improvements.
  
• The company has benefited from diversified portfolio strategies and positive commodity market fundamentals, suggesting potential resilience and continued revenue growth in various segments, including branded and value-added products.
  
• Growth in consumer confidence in Europe, coupled with deflationary trends, has supported the turnaround of Pilgrim's European operations, which may contribute positively to margins and earnings moving forward.
  
• The company's operational improvements, such as production efficiencies and strategic capital investments, have driven profitability gains in the U.S. market, indicating potential for further cost savings and margin expansion.
  
• In Mexico, despite seasonal and weather-related disruptions, branded products have shown significant growth, suggesting that the company could maintain strong revenue performance and expand market share in that region.

Valuation

• The analysts have a consensus price target of $44.83 for Pilgrim's Pride based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $51.0, and the most bearish reporting a price target of just $38.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $18.4 billion, earnings will come to $696.5 million, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 5.9%.
• Given the current share price of $50.65, the analyst's price target of $44.83 is 13.0% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.