Citing lower corn prices as a factor in a potential profit improvement, analyst Ken Goldman of J.P. Morgan upped his rating of the company's stock to "overweight" from "neutral." Smithfield Foods stock trades under the symbol SFD.
The analyst also cited stabilizing fundamentals and a falling risk that the company will violate its debt covenants. Based on improving news about the company, Goldman believes the stock will eventually trade at a higher price.
However, the stock is not for short-term or skittish investors, Goldman warns. "We cannot emphasize enough the risks involved with this name." But after two more poor quarters, the picture for Smithfield may be brighter.
"With corn having dropped to around $3.50 and futures markets calling for continued relative weakness, the grain should pose much less of a threat" than it did last year for livestock operations, according to Goldman. "A steep decline in the price paid for this commodity will have a meaningful effect on Smithfield's profits."