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Sanderson Farms: Buy Signal Getting Closer

May 04, 2018 3:16 PM ETSanderson Farms, Inc. (SAFM)6 Comments
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Individual Trader


  • Looks on the cheap side.
  • Sentiment is ultra pessimistic.
  • Grain prices should ease off, which should help this stock rally.

Sanderson Farms (NASDAQ:SAFM) has around 20 days until its upcoming earnings report and it will be interesting to see if the present weekly swing low can hold until then. This stock came across my desk as a potential value play due to its current valuation. The jury is out though on this stock due to its much lower expected earnings this present fiscal year which will end at the end of October. In fiscal 2017, Sanderson Farms reported $12.30 in earnings per share but only $9.71 is predicted this year and a further decline the following year. However given the nature of the external factors that affects the business of Sanderson Farms, consistent earnings have never been the norm.

In fact, in fiscal years 2015 and 2016, earnings per share dropped sharply before rising again in 2017. At first glance, what the company really has going for it is its balance sheet. Equity of $1.43 billion in its most recent fiscal year of $1.43 billion dwarfed the liabilities sum of $327 million. On the contrary, I'm conscious of the downside risk here due to the apparent lack of strong competitive advantages. The price of grain alone or a mere economic downturn can have a huge impact on Sanderson's margins. In fact, we saw how susceptible this stock was to external factors in the great recession of 2008.

In saying this, we may have an attractive long set-up here if risk is controlled and stops are honored. Let's first go through the company's 10 year financials to see if we can spot any trends which could potentially derail a long investment.

We will designate a pass/fail mark to each financial metric depending on whether we have seen meaningful growth for that respective metric over the past decade. As we currently are in

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SAFM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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