Case Ready And Prepared Foods Shift Will Drive Long Term Upside Potential

Catalysts

About Pilgrim's Pride

Pilgrim's Pride is a global protein company that produces and markets fresh and value added chicken and other meat products across the U.S., Europe and Mexico.

What are the underlying business or industry changes driving this perspective?

• An accelerating mix shift toward Case Ready and Prepared Foods, including the conversion of a Big Bird plant and a new state-of-the-art facility in Walker County to support Just BARE, is expected to structurally increase value added volumes and lift consolidated revenue growth and EBITDA margins over time.
• Growing consumer preference for affordable protein compared with higher-priced beef and pork, combined with chicken-led menu innovation at QSRs and retail, positions Pilgrim's diversified Small Bird, Case Ready and branded offerings to pursue outsized volume gains and support resilient top-line and gross margins.
• Ongoing operational excellence programs, including live performance gains, network optimization in Europe and process upgrades in Big Bird, are aimed at closing efficiency gaps and lowering unit costs, which is intended to underpin stronger net margins and earnings even in more normalized commodity cycles.
• Strategic international expansion in Mexico and Europe, with investments in Fresh and Prepared capacity, branded growth and key customer partnerships, is deepening exposure to faster-growing and higher-return markets to support longer-term revenue compounding and a more balanced EBITDA contribution by region.
• Disciplined capital allocation supported by low leverage, ample liquidity and a robust CapEx pipeline in high-return projects such as protein conversion and Prepared Foods is intended to enable Pilgrim's to self-fund growth, enhance portfolio quality and support sustained earnings and free cash flow expansion.

Assumptions

This narrative explores a more optimistic perspective on Pilgrim's Pride compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Pilgrim's Pride's revenue will grow by 2.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 6.7% today to 5.2% in 3 years time.
• The bullish analysts expect earnings to reach $1.0 billion (and earnings per share of $4.47) by about December 2028, down from $1.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $674.7 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.5x on those 2028 earnings, up from 7.7x today. This future PE is lower than the current PE for the US Food industry at 20.3x.
• The bullish analysts expect the number of shares outstanding to grow by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• USDA projections for continued 2% to 3% annual growth in US chicken production, alongside record corn demand and rising global grain trade flows, risk creating long periods of oversupply and only modest feed cost relief. This could pressure chicken pricing power and compress revenue growth and EBITDA margins over the cycle.
• Persistent consumer budget strain, lower restaurant traffic, and increasing reliance on promotions and value offers at QSR and retail may entrench a highly promotional environment. In such an environment, Pilgrim's may need to sacrifice pricing or mix to defend volume, weighing on net revenue per pound and net margins.
• Structural shifts in export markets, including China’s antidumping actions against European pork and ongoing bans on US meat due to avian influenza, highlight the long-term risk of trade barriers and geopolitical tensions limiting export channels for surplus production. This could depress realized prices and earnings in downturns.
• Rising competition from private label and imported commodity meat in Europe, particularly impacting branded offerings like Richmond sausages, suggests a secular risk that retailer brands and lower-cost imports take share. This could force heavier promotion and innovation spending that erodes European segment margins and overall profitability.
• Increasing biological and disease-related risks, including commercial high-path avian influenza incidences and the industry’s reliance on very high hatchery utilization and dense breeding flocks, raise the likelihood of disruptive outbreaks or mandated supply cuts. These could drive operational inefficiencies, unexpected costs, and volatility in earnings and free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Pilgrim's Pride is $54.25, which represents up to two standard deviations above the consensus price target of $43.57. This valuation is based on what can be assumed as the expectations of Pilgrim's Pride's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $56.0, and the most bearish reporting a price target of just $40.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $19.9 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $39.82, the analyst price target of $54.25 is 26.6% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.