Will Smithfield Foods See All-Time Highs?

With shares of Smithfield Foods (NYSE:SFD) trading around $33, is SFD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Smithfield Foods produces and markets a variety of fresh meat and packaged meats products both domestically and internationally. It operates in four segments: Pork, Hog Production, International and Corporate, each of which consists of a number of subsidiaries, joint ventures and other investments. Fresh and packaged meats are essential food choices for many consumers around the world. As populations grow and consumers look to add these options to their food choices, companies like Smithfield Foods stand to see significant profits. So long as demand for meat products exists and populations expand, Smithfield Foods will continue to be a strong company.

T = Technicals on the Stock Chart are Strong

Smithfield Foods stock has seen a consistent uptrend over the last several years. The stock is making strong moves this year and looks set to battle it out near all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Smithfield Foods is trading above its rising key averages which signal neutral to bullish price action in the near-term.

SFD

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Smithfield Foods options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Smithfield Foods Options

13.11%

20%

19%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Smithfield Foods’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Smithfield Foods look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-57.37%

18.37%

-90.54%

-18.37%

Revenue Growth (Y-O-Y)

3.47%

3.02%

-2.62%

-0.09%

Earnings Reaction

-0.03%

10.67%

0.34%

2.74%

Smithfield Foods has seen mostly decreasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have been optimistic about Smithfield Foods’ recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Smithfield Foods stock done relative to its peers, Tyson Foods (NYSE:TSN), Hormel Foods (NYSE:HRL), Seaboard (NYSE:SEB), and sector?

Smithfield Foods

Tyson Foods

Hormel Foods

Seaboard

Sector

Year-to-Date Return

54.01%

31.96%

30.02%

6.84%

29.46%

Smithfield Foods has been a relative performance leader, year-to-date.

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Conclusion

Smithfield Foods is a provider of fresh and packaged meat products that are seen as a staple food item for many consumers and growing populations worldwide. The stock has seen an impressive run over the last few years and is now set to battle it out near all-time high prices. Over the last four quarters, earnings have mostly decreased while revenue figures have been mixed, regardless, investors in the company have been optimistic. Relative to its peers and sector, Smithfield Foods has been a year-to-date performance leader. Look for Smithfield Foods to OUTPERFORM.

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