Sanderson Farms: Birds of a feather don't flock together

Sanderson Farms Inc. (Nasdaq:SAFM) has a lot of pluck to plan a chicken processing capacity expansion while some struggling competitors are crying out for industry cutbacks to firm up prices.

While demand for poultry is healthy, producers face the big problem of higher costs, mainly for transportation and feed, as oil and other commodities including corn continue to rise.

The fourth-largest U.S. poultry producer, though, hasn’t hit the panic button, and Mississippi-based Sanderson Farms recently announced plans to open a new plant in North Carolina in late 2009, primarily to handle retail-packaged products. Last year, the company brought online a plant in Waco, Texas, to process 1.25 million chickens a week.

For the most part, analysts who follow Sanderson Farms are staying neutral, with four of the five recently polled by Thomson Reuters having the stock at “hold,” and the other deeming it a “strong buy.”

Sanderson Farms began as a rural feed store in the 1940s, started a hatchery to sell more feed to farmers, then began buying back the chickens and selling them. Now Sanderson has plants scattered across the South, producing chill-pack and frozen chicken for the retail market, big-bird processing for commercial use, and specialty foods manufacturing. Russia and China are growing markets for leg-quarter products.

The median price target for the company is $50, about 10% under its historical high of $55.18 in June 2004. On May 29, Sanderson hit a 52-week high of $50.45 and shares dropped as low as  $27.80 on Jan. 22. The stock closed Wednesday at $39.99.

Still, Sanderson executives have bluntly outlined the challenges in several recent presentations. During a June 4 presentation at the Stephens Inc. Spring Investment Conference, chairman and CEO Joe Sanderson explained why the company . . .

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