Sanderson Farms (NASDAQ:SAFM), a leader in poultry production, particularly chicken, shot up 10% in premarket action amid reports the company was looking to sell itself off. The gains held into this morning's trading session as well. Though the company is spiking on the news of potential sell-off afoot, the word from the broader financial analyst community is urging caution on buying in.
Sanderson Farms Looking to Make a Deal
The news of potential sale left Sanderson Farms stock heading upward; at one point in overnight trading, the company's market cap reached $3.72 billion. That suggests a floor for potential sales offers, and premiums would likely have to be offered over and above that amount.
Reports suggest that Sanderson Farms is considering the sale mainly because demand is on the rise for chicken, and that will send prices of the bird upward accordingly. Additionally, the prices of growth input are also on the rise; grain prices, including grain used as chicken feed, have been on the rise as Chinese grain buying has been steadily high and South American farmers have run into weather troubles.
With growing demand, growing costs, and labor shortages still in play for actually getting the bird to shelves, price hikes seem almost inevitable. Some price hikes have already been noticed; last week—based on word from the USDA—chicken wings ran $2.72 per pound, and that's up around $0.20 from this time last year. Sanderson has also reportedly enlisted help from Centerview Partners in establishing the sale.
The help seems to be paying off; the company already has some interested buyers considering further involvement. Reports note that Continental Grain, an agricultural investment firm, has already begun talks with Sanderson Farms. Though the talks may not result in a sale, reports note, the talks have begun regardless. Should the Continental / Sanderson talks result in a sale, the result would be a company producing around 15% of the United States' chicken supply, and make it a close second to Pilgrim's Pride (NASDAQ:PPC), which produces 16%.
How Do Financial Analysts Feel About Sanderson Farms Stock?
While the market is looking for further Sanderson Farms stock news, the word out of financial analysts is to hold position. Currently, Sanderson Farms stock—based on our latest research—has a consensus rating of “hold”, a rating that's been the case for the last two years.
A year ago, the company had one “buy” rating and six “hold” ratings to its credit. Six months ago, that surged to two “buy” ratings and eight “hold”. Today, we stand at two “buy” ratings and five “hold”, which suggests a slightly more bullish case for Sanderson, but one still largely regarded as a “hold” overall.
The Sanderson Farms price target, meanwhile, is in a fairly narrow range. The current consensus is $171.00, with a high of $198 and a low of $140. Given that Sanderson Farms stock currently trades at $182.82, there is some downside potential that comes with this stock. Should Sanderson Farms sell, though, the premium would likely kick in, pushing the stock toward the high price targets.
Recent activity for Sanderson Farms stock has been light, and mixed. June featured two changes, with the month leading off on a down note as Barclays downgraded Sanderson Farms from “overweight” to “equal weight”, but increased the price target from $170 to $175. Earlier today, however, JPMorgan Chase & Co. stepped in to turn things around, upping the price target from $175 to $198. Meanwhile, back in May, BMO Capital Markets upgraded its price target on the company from $180 to $195.
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