Pilgrim’s Pride (NYSE: PPC) Stock Turning into a Value Buy

Processed poultry products maker Pilgrim’s Pride NYSE: PPC shares have been punished in 2020 trading near the COVID-19 pandemic lows even after the benchmark S&P 500 index NYSEARCA: SPY made its recovery into July. Poultry farms have undergone a number of COVID-19 related problems ranging from plant shutdown, infected workers to China import restrictions. While peers including Tyson Foods NYSE: TSN and Sanderson Farms NASDAQ: SFAM are suffering the same fate, Pilgrim’s Pride shares may present the best value as the industry tries to recover. Risk-tolerant investors can monitor the peers but stalk opportunistic pullback levels on PPC shares for a better recovery play.   

Q1 FY 2020 Earnings Release

On April 29, 2020, Pilgrim’s Pride reported its Q1 2020 earnings for the quarter ended in March 29, 2020. Earnings came in at $0.18 per shares excluding non-recurring items beating consensus analyst estimates of $0.17 by a penny. The Company saw drops in the fresh business but surge in case-ready operations. Revenues beat consensus estimates coming in at $3.07 billion versus $2.98 estimates rising 12.9% year-over-year (YoY). This caused shares to gap and crap the following trading day as shares commenced its sell-off through pandemic lows. The Company took quick measures to cut its capex under new strategic initiatives to support key customer growth while cutting exposure to commodity markets through a differentiated portfolio. The Company experienced business disruptions due to the COVID-19 triggered travel and movement restrictions hurting retail and foodservice channel demand. The volatility occurring from the beginning of Q1 to the end of the quarter was the fastest shift in customer demand in the Company’s history.

The Growth of Case-Ready and Online Orders

The Just BARE brand case-ready chicken saw incredible demand with online sales increased over 200% and in last four-weeks was up 498%. This is likely due to the stockpiling that consumers undertook during stay-at-home orders. China exports increased in Q1 due to duty abatement by the Chinese government along with several Southeastern Asian countries, Latin America and several African markets that drove export sales up 24% YoY. The collapse in corn prices and ethanol demand is projected to result in large 2020 surpluses. The Company invested $30 million in automation technology and will continue to. The projects are paying off in this environment and helping to address worker absenteeism due to COVID-19 infections. The online business has been very strong to offset fresh products.

CEO Takes Leave of Absence

On June 14, 2020, Pilgrim’s Pride announced its CEO Jayson Penn would be taking a paid leave of absence to focus on his indictment defense, which he has please not guilty. Penn is one of four poultry industry executives that were indicated on charges of price-fixing. On June 3, 2020, the U.S. Justice Department indicted four current and former Pilgrim’s Pride and Claxton Poultry Farms executives for price-fixing. Company CFO Fabio Sandri has taken over as interim CEO during this process. 

 Pilgrim’s Pride Price Trajectories

Using the rifle charts on monthly, weekly, and daily time frames provides a broader view of the landscape for PPC stock. The monthly stochastic has a bearish mini inverse pup with the 5-period moving average resistance at the $18.85 Fibonacci (fib) level. The weekly rifle chart triggers a market structure low (MSL) above $19.42. The weekly stochastic has a bearish mini inverse pup with 5-pd MA resistance at $17.31 and lower weekly Bollinger Bands (BBs) at $14.99. The daily stochastic has crossed down but coiled off the weekly MSL after briefly making new COVID-19 lows at $15.55.  The daily has an opportunity for a MSL trigger above $16.43. While the wider time frames are all bearish, shares are oversold and may be setting up for a daily buy trigger above the MSL trigger. Opportunistic pullback and entry levels sit at $16.63 fib, $15.75 weekly MSL, $14.99 fib and the $14.41 sticky 5s zone. If the daily MSL triggers with a stochastic cross back up through 20-band then upside trajectories on PPC shares point to $18.37 fib, 19.42 weekly MSL trigger and up to the $23.05 fib. It pays to watch peers SAFM and TSN move first as leaders and play PPC as a laggard trade. The Company is set to report earnings at the end of the month July 2020. Watch for scaling opportunities if sold off after the report, but the bar has been set pretty low already.