Ahead of the Bell: Meat processors

A KeyBanc Capital Markets analyst raised price targets for shares of two meat-processing companies despite rising grain costs that could hurt fiscal 2010 profits.

Analyst Akshay S. Jagdale boosted his price target for chicken processor Sanderson Farms Inc. to $52 from $43, indicating he now expects the shares to gain 10 percent in the next 12 months.

Jagdale noted that the company beat his profit estimate in its latest reported quarter and said in a note to investors that chicken-part prices are rising.

He raised the target even though feed costs also appear to be rising. Animal feed is made of corn and soybeans, so increases in those prices lead to higher feed costs for processors.

The analyst also raised his price target on Hormel Foods Corp., which makes pork products like Spam and also sells foods like Dinty Moore stews, by $3 to $39. That suggests a rise of about 12 percent.

But he also said the higher grain prices could hurt fiscal 2010 profit. The analyst chopped his estimate for fiscal 2010 profit to $2.52 per share from $2.60 per share.

"We remain positive on chicken producer economics despite the recent run-up in grain prices and are now more cautious on the outlook for commodity pork processors," said Jagdale.

Jagdale also retained his price target of $16 on shares of Tyson Foods Inc. and increased his 2009 earnings estimate to 42 cents per share from 24 cents per share.