Some companies have enjoyed a strong business for years until the winds of change begin to blow.
Pilgrim's Pride is one of those companies as consumers are starting to demand different types of commodity foods.
NEW BULLISH Plays
No New Bullish Plays
NEW BEARISH Plays
PPC - Pilgrims Pride - Company Profile
Pilgrim's Pride Corporation engages in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken products to retailers, distributors, and foodservice operators in the United States, Mexico, and Puerto Rico. It offers fresh chicken products comprising pre-marinated or non-marinated refrigerated (non-frozen) whole chickens, whole cut-up chickens, and selected chicken parts. The company also provides prepared chicken products, including portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties, and bone-in chicken parts. The company sells its products to foodservice market, including chain restaurants, food processors, broad-line distributors, and other institutions; and retail market customers comprising grocery store chains, wholesale clubs, and other retail distributors. In addition, it exports chicken products to the Middle East, Asia, the Commonwealth of Independent States, and other countries. Pilgrim's Pride Corporation was founded in 1946. Company description from FinViz.com.
The chicken business is becoming a lot more competitive. The consumer movement to free range chickens with no antibiotics and growth hormones is squeezing normal high volume breeders and reducing their market share. When your chickens have been previously grown in one square foot cages the change to free range brings a lot of problems and a decline in volumes. They are also faced with the growing occurrences of various bird flu breakouts.
PPC sells a lot of meat internationally and the prohibitions are growing against antibiotics and growth hormones. When an entire country becomes suddenly off limits because of new restrictions that can be costly.
In order to combat these problems the company spent large sums of money in research and development and now that debt has become a new burden in a shrinking marketplace. Earnings are also sensitive to price movement in the agricultural community with the cost of soybeans, corn and other feed grains continually rising. The fluctuating dollar is also a problem with their international sales.
Earnings Oct 26th.
Shares are about to trade at a 10-month low when they fall under $20.65. That could accelerate the selling as investors give up on the stock.
Sell short PPC shares, currently $20.90, initial stop loss $21.65.
Optional: Buy Nov $20 put, currently 75 cents, initial stop loss $21.65.