BMO Capital upgraded Pilgrim's Pride (NASDAQ:PPC) to Outperform from Market Perform with a price target of $28.00, reflecting the view that a greater set of potential catalysts has shifted risk/reward more favorably. Shares jumped more than 9% intra-day today.
According to BMO, these catalysts include the likely acquisition of Pilgrim's Pride by JBS following its proposed U.S. listing announced yesterday and the higher possibility of lower feed costs benefiting U.S. chicken margins in the upcoming quarters.
Considering the possibility of an acquisition acting as a catalyst, the potential for favorable feed costs, and the U.S. chicken industry demonstrating signs of limited supply (with production indicators remaining relatively stable), BMO is increasingly inclined to the optionality of potentially improving supply/demand balance to drive higher chicken prices moving forward through either production cuts or demand improvements (e.g., promotions).
“We lower 2Q/3Q EPS for near-term chicken margin pressures, but believe it is well understood,” added the firm.