Smithfield Foods (SFD): Exploring Valuation as Shares Trade Below Analyst Targets

Smithfield Foods (SFD) shares have been under some pressure this month, slipping around 9% over the past month despite steady annual revenue and net income growth. Investors are likely weighing current performance against broader industry trends.

See our latest analysis for Smithfield Foods.

Despite a muted 30-day share price return of -9.2%, Smithfield Foods has posted steady annual growth in both revenue and net income. The recent dip in share price suggests investors may be factoring in broader food industry shifts or reassessing risk. However, the company’s longer-term track record remains intact and could hint at underlying value for patient holders.

If you’re weighing your next move, now is a good time to broaden your investing horizons and discover fast growing stocks with high insider ownership

With shares trading nearly 28% below analyst price targets and strong earnings growth reported, investors are left wondering if Smithfield Foods is currently undervalued or if the market has already accounted for future gains.

Price-to-Earnings of 11x: Is it justified?

Smithfield Foods is currently valued at a price-to-earnings (P/E) ratio of 11, which positions the stock as a standout for value compared to both industry peers and what fair value models suggest.

The price-to-earnings ratio measures how much investors are willing to pay for one dollar of company earnings. For a food sector company like Smithfield Foods, this metric is especially relevant as it reflects both growth prospects and risk appetites prevalent in a stable but competitive industry.

Trading at 11x earnings, Smithfield Foods is noticeably undervalued compared to US Food industry peers, which average 18.1x, and is even below the peer group average of 15.9x. Our fair value regression implies a fair P/E ratio of 16.7x, a level the market could gradually reprice toward if earnings momentum persists or investor sentiment improves.

Explore the SWS fair ratio for Smithfield Foods

Result: Price-to-Earnings of 11x (UNDERVALUED)

However, slowing revenue growth and recent short-term share declines could signal underlying challenges. These factors might temper the case for Smithfield Foods’ undervaluation.

Find out about the key risks to this Smithfield Foods narrative.

Another View: Discounted Cash Flow Indicates Further Upside?

Looking at Smithfield Foods using our SWS DCF model, a much higher fair value is suggested. With shares trading at $23.16 and our DCF estimate coming in at $54.60, the stock appears priced at less than half of its calculated intrinsic value. Is the market overlooking something, or is this optimism unwarranted?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Smithfield Foods for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Smithfield Foods Narrative

If you have your own perspective or want to dig deeper into the numbers, building your own view is quick and easy. Do it your way

A good starting point is our analysis highlighting 5 key rewards investors are optimistic about regarding Smithfield Foods.

Looking for more investment ideas?

Smart moves come from staying ahead of the curve, and Simply Wall Street's screeners make it simple to find exciting opportunities that others might overlook.

• Start boosting your potential returns by targeting high yields with these 19 dividend stocks with yields > 3%, offering companies providing over 3% income.
• Get ahead of innovation by accessing these 24 AI penny stocks, focused on game-changing artificial intelligence trends across multiple industries.
• Supercharge your portfolio's value by securing positions in these 909 undervalued stocks based on cash flows, identified as attractively priced based on cash flows.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com