Updated with corrections.



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Smithfield Foods


had been hit hard by the swine-flu scare in the first quarter fiscal 2010 period, but its fortunes could improve in the second quarter.

Ahead of its second-quarter earnings announcement on Thursday, Stephens analyst Farha Aslam has upgraded Smithfield to an overweight from an equal- weight rating. Aslam anticipates an improvement in hog production profitability with her growing confidence that the swine-flu virus will not materially impact domestic demand or exports.

Stephens' has raised its price target for Smithfield Foods to $20 from $16.

"Hog producers have been in the red since the summer of 2007, burdened by an oversupply of hogs and high grain costs," says Aslam. "We believe that a turnaround, albeit a slow one, will become more evident in the coming year."

"We believe the turn in the hog cycle will be the key catalyst for SFD stock, as Smithfield Foods is the largest hog producer in the U.S.," Aslam added, noting that the investment upgrade has also been driven by Smithfield's production cuts and greater assurances on the U.S. grain supply.

Smithfield suffered greatly in the first quarter, posting a net loss of $107.7 million compared to a net loss of $13.2 million in the same quarter last year -- losses the company blames on the impact of the swine-flu outbreak at the end of the fiscal fourth quarter of 2009. The outbreak led to softer export demand and a fall in hog prices, which negated the fall in hog raising costs and the strong profits in Smithfield's pork processing business.

During its first quarter earnings report, Smithfield had given a grim outlook on the hog production industry, saying that current live hog market prices have been substantially below raising costs for the foreseeable future. "We believe the industry has finally reached an inflection point where liquidation must occur," its CEO Larry Pope said. The company had planned on making modest sow reductions and farm closings.

Stephens expects Smithfield to report a second-quarter earnings loss of 33 cents versus 21 cents in the year-ago period.

Smithfield produces more than 50 brands of pork and turkey products and more than 200 gourmet foods, making it the world's largest producer and processor of pork and a leader in turkey processing. The company produces products such as the Butterball turkey, Farmland bacon and sausage links and Smithfield smoked hams.

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Smithfield stock has added 1.2% at $16.30 in morning trading. Other meat producers have been moving in different directions.

Tyson Foods

(TSN) - Get Report

has taken back 0.7% at $12.60.

Hormel Foods

(HRL) - Get Report

has been trading down 1.4% at $38.40.

Sanderson Farms

(SAFM) - Get Report

has been trading 4.3% higher at $44.30.

-- Reported by Andrea Tse in New York

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