KeyBanc Starts Coverage Of Tyson, Sanderson Farms

MILWAUKEE (AP) — KeyBanc Capital Markets Inc. initiated coverage of meat processors Tyson Foods Inc. and Sanderson Farms Inc. on Thursday, saying the chicken industry is well positioned, given drops in feed costs and the increasing trend of consumers eating at home to save money.

Analyst Akshay Jagdale wrote that the firm has initiated coverage of Sanderson Farms with a buy rating while it recommends holding shares in Tyson Foods, the world's largest meat producer.

The industry has been going through a slump as meat makers push through ingredient costs for key inputs like corn that reached record highs last summer. Further hurting matters is a slump in consumption at restaurants, since consumers are pulling back on their spending there to save money. The chicken industry has especially been hurt by weak pricing, and it is now cutting production to boost prices.

Jagdale wrote to clients that the feed costs should moderate more, consumers will keep eating at home rather than in restaurants and within that, trading from higher priced protein like beef to lower priced protein, like chicken.

The analyst said restaurant demand would have to pick up "considerably from current levels" for chicken producer earnings to be restored to normal levels. Some 43 percent of the chicken produced in 2008 went to the foodservice industry.