Key Takeaways
Over the last few months, conventional meat processors have been facing challenges due to Covid-19, including plant shutdowns, lower foodservice demand, and higher costs from lower production, higher bonuses, and enhanced safety measures.
Year-to-date, shares of Tyson Foods, Inc. (TSN), Pilgrim’s Pride Corp. (PPC), and Sanderson Farms, Inc. (SAFM) have all significantly underperformed the S&P 500, while Hormel Foods, Inc. (HRL) has modestly outperformed the market.
We forecast Q2 sales and profits for conventional meat processors will be the trough and conditions will rapidly improve by Q3 and continue to further advance.
Over the long term, we see significant growth opportunities due to 1) new trade channels; 2) rising global meat demand; and 3) a global meat shortage caused by African Swine Fever.
We believe shares of plant-based meat company Beyond Meat (BYND) have been excessively rewarded due to the dynamic playing out in the conventional meat space. As a result, we recently lowered our opinion on BYND to Sell from Hold.
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