Don't Chicken Out When it Comes to Sadia S.A

Dec. 6.06 | About: Sadia S.A. (sda-old)

There are many factors influencing the market for chicken meat. One which played heavily some months ago and which may do so again is the risk of a bird flu pandemic.

When the public debate about bird flu was most in the public eye last winter, world chicken meat sales fell nearly 30%. The stock prices for leading chicken meat processors fell too [see chart below]:

click to enlarge
chicken stock prices

The chicken stocks began suffering about 1 ½ years ago, and were particularly hit about 11 months ago when Pilgrims’ Pride (NYSE:PPC) made a vertical descent. Pilgrim’s Pride, Sanderson Farms (NASDAQ:SAFM) and Tyson (NYSE:TSN) declined until about 8 months ago when they seemed to flatten out.

A Brazilian chicken processor, SADIA S.A (NYSE:sda-old) took its own dive about 6 months earlier than the US processors. That may have been some other country or currency specific issue. We don’t remember, but it was probably a bit early for bird flu influence.

Over the last three years, SDA is up over 175%, while SAFM is up less than 100% and TSN and PPC are up less than 50%.

To make matters a little more favorable for SDA, it pays a 5.1% dividend yield, compared to 0.4% to 1.7% for the others.

SDA has done better on a 1-year and 3-month basis as well.

SDA 1 yr and 3 mo chart

SAFM has been looking pretty good lately too.

SDA is a global operator. Here is a quote from their website:

“Sadia currently exports quality to over 65 different markets, mainly in Europe, the Middle East, Russia, Japan, Southeastern Asia and the Americas.

Sadia has 14 distribution centers in Brazil and also runs commercial offices in England, Italy, the United Arab Emirates, Japan, China, Argentina, Chile and Uruguay.”

SDA has favorable key ratios also:

SDA Key Ratios

There will be another bird flu scare or real pandemic and the chicken processors will probably take a big hit before the public realizes they can’t effectively eliminate that meat source from the world diet, and when they realize that cooking destroys the bird flu virus entirely.

We hope that when the next scare comes, we will have the courage to buy more SDA.

Disclosure: Author bought SDA on August 23, 2006 at $26.07 [market $33.25] and continues to hold stock. Author has no position in any of the other chicken companies.