090114 Smithfield Foods Downgraded

January 12, 2009

New York (AP) -- The fast ascent of Smithfield Foods Inc.'s stock price led a Deutsche Bank analyst to lower the company's rating Friday after she upgraded the shares a little more than a month ago.

Analyst Christina McGlone raised the Smithfield, Va.-based pork maker to "Buy" on Dec. 7, 2008, but is now taking the company down to "Hold," as its share price has surged since then to surpass her price target of $14.

The shares closed at $13.89 on Thursday, but have traded between $14.14 and $15.03 since the beginning of January.

"We still believe that hog production fundamentals will improve in fiscal 2010 vs. fiscal 2009 and that material cost savings exist given the regional/decentralized organization structure. However, with the shares hitting our price target, we are moving to the sides," she wrote in a client note.

McGlone was also cautious on pork prices. While the outlook for supply and demand of proteins in the U.S. would suggest that pork prices could rise in 2009, U.S. consumers probably won't eat more pork at increased prices during a recession, she said. Consumers have increasingly tightened spending as they contend with economic concerns and job worries.

"As a result, it is unlikely for pork prices to rise, thus squeezing pork processing margins," she said.

McGlone maintained her $14 price target and dropped her 2009 forecast to a loss of 66 cents per share from a loss of 22 cents per share. She also slashed her fourth-quarter earnings per share estimate to 5 cents from 55 cents on the probable loss in hog production.

Analysts polled by Thomson Reuters predict 2009 loss of 37 cents per share and fourth-quarter profit of 16 cents per share. Analysts' estimates typically exclude one-time items.