Headwinds Mount for Sanderson as Costs Rise Amid Soft Restaurant Demand; Shares Somewhat Attractive
Our $129 fair value estimate for no-moat Sanderson Farms shouldn't change much after the company's second-quarter earnings. The firm posted 6% first-half sales growth against 477 basis points of operating margin degradation versus our full-year marks of 3% (front-loaded as a result of plant investments) and 370 basis points (to 9%). We believe the results match our view that long-term profitability will be strained as costs normalize, so our long-term targets of 3% sales growth and high-single-d...Sanderson Farms is a poultry processing company engaged in the production, processing, marketing and distribution of frozen chicken products, including processed and minimally prepared chicken. The company sells ice-packed, chill-packed, bulk-packed and frozen chicken, in whole, cut-up and boneless form to retailers, distributors, and casual dining operators, and to customers who resell frozen chicken into export markets. The company operates through: Sanderson Farms, Inc. (Production Division), which is engaged in the production of chickens to the broiler stage; and Sanderson Farms, Inc. (Processing Division), which is engaged in the processing, sale and distribution of chicken products.
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