After sinking more than 20 percent recently, shares of chicken producer Sanderson Farms Inc. climbed Tuesday due to a rating boost from a Stephens Inc. analyst.
Analyst Farha Aslam raised her rating to "Overweight" from "Equal Weight" and kept her target price at $50.
In a note to investors, Aslam noted that that company's share price has dropped 22 percent in the last several weeks because of a spike in grain prices and "weak" chicken prices.
The cost of corn has been a major catalyst behind lower share prices throughout the meat producer sector recently. Corn, which was already at record-high prices, jumped up to more than $7 a bushel at the end of last week. On Monday, corn futures for July delivery rose to an all-time high of $7.60 a bushel on the Chicago Board of Trade before falling back slightly.
The latest boost in corn prices stems from heavy Midwest rains that have soaked fields and led to damaged crops and fears of a much smaller-than-expected supply of the grain for the season.
For meat producers, the increased prices mean far higher animal feed costs. Corn is a key ingredient in animal feed.
Higher chicken prices could offset the rising cost of feed, but so far, chicken prices have not increased fast enough to keep pace.
Despite the challenges, Aslam said "this is likely a good time to buy Sanderson Farm shares."
Aslam said grain prices may peak over the next few weeks and chicken prices are beginning to move up. Sanderson Farms, she said, could be a big beneficiary of any improvements in the environment since it is well-managed.
"The company is one of the best operators in the chicken space with an excellent management team and a conservative balance sheet," Aslam said.
Shares advanced $2.07, or 5.1 percent, to $42.96 in late morning trading.
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