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BusinessWeek: January 11, 1993 |
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Inside Wall Street
A POULTRY PRODUCER TAKES FLIGHT... One New York money manager has been buying shares for two reasons: the current consumer passion for "healthy eating," and the company's fundamentals, which he believes are turning around and could well produce better-than-expected earnings over the next couple of years. Analyst Kenneth Gassman Jr. of Davenport & Co. in Richmond, Va., agrees. He recently raised his estimate for the year ending June 30, 1993, to $1.25 a share from his previous $1, and he has lifted his fiscal 1994 estimate to $2 a share from his prior $1.75. "After 10 negative quarterly earnings comparisons, the fourth quarter of fiscal 1992 was the first period to show improved earnings on a year-to-year basis," notes Gassman. His new $1.25 estimate could easily go up to $1.50 if the upbeat trend continues, he adds. Prices of poultry feed, such as corn and soybean meal, have stayed low, Gassman notes, while wholesale poultry prices have gone up sharply--thereby expanding the company's profit margin. WLR produced some 300 million pounds of live turkeys and 433 million pounds of live chickens in 1992. The company's October acquisition of Round Hill Foods, a Pennsylvania turkey producer and processor, will add some 100 million pounds of capacity. WLR's 1992 revenues of $514 million from its six plants in Pennsylvania, Virginia, and West Virginia are expected to hit $750 million in 18 months. GIZZARD GUZZLERS. Company insiders see two markets with strong sales growth: exports, where prices are sturdier, and fast food/food service, where demand from customers such as KFC and Hardee's Food Systems is on the rise. In exports, Japan has become a big outlet for WLR's dark meat, which is more popular there than it is in the U.S., as well as such products as gizzards, turkey skins, and chicken hot dogs. One company insider expects WLR's exports, which account for 5% of total sales, to double in the next two years. And sales to the fast-food/food-service market should jump from the current 24% of total sales to 30%. Gassman sees WLR's stock rising to 25 in the next few months and then going up some more, to 30, over the next 12 months. Based on his $2-a-share estimate for 1994, he thinks a price-earnings ratio of 15 is modest. Of course, if earnings exceed expectations, that multiple should follow. | |
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