Sanderson Farms: Poultry Profits

04/21/2015 8:00 am EST

Focus: STOCKS

Charles Mizrahi

Editor, Park Avenue Investment Club and Inevitable Wealth Portfolio

Our latest featured buy recommendation is a poultry processing company engaged in the production, processing, marketing, and distribution of fresh and frozen chicken products, notes value investor Charles Mizrahi, editor of Hidden Values Alert.

Dewey Sanderson founded Sanderson Farms (SAFM) in 1947. Initially, the Mississippi-based company supplied seed, feed, and fertilizer.

It began breeding poultry when his sons Dewey, Jr. and Joe Frank Sanderson joined the company in 1951. The purchase of a broiler processor in 1961 created a vertically integrated company.

Throughout the 60s and 70s, the company expanded its operations by constructing more facilities in Mississippi and acquiring plants in Louisiana.

The company went public in 1986 after entering the processed and prepared foods business. Joe, Jr., the grandson of the founder, is the current CEO, a position he has held since 1989.

The company has been vertically integrated since 1961. SAFM’s vertically integrated operations are crucial to its highly efficient, low cost enterprise.

The company is involved throughout the process from breeding to distribution.

SAFM is currently one of the nation's leading food corporations in fiscal 2014, with sales of more than $2.8 billion.

They are currently the third largest poultry producer in the US, with plans to process over 3 billion pounds of meat in fiscal 2015.

Feed costs during the first quarter decreased by 10% and sales price per pound increased, resulting in significantly improved gross margins.

The company sees increased chicken demand for the balance of the year. McDonald’s, Burger King, and Subway are all promoting chicken products in their establishments.

SAFM’s balance sheet currently has $173 million in cash and only $20 million in debt, which the company is focusing on paying off soon.

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