Smithfield Foods, Inc. (SFD), Tyson Foods, Inc. (TSN): This Pork Business Seems To Be Quite Attractive

In addition, Smithfield should take its opportunities in China, which accounted for 50% of the world’s pork production and consumption. Smithfield could secure a long-term supply agreement of US pork with China, market Smithfield brands and partner with first class Chinese companies. Furthermore, as Smithfield had quite a strong balance sheet, Smithfield could return cash to shareholders in the form of either dividends or share buybacks. The repurchase program could continue as long as the company did not have a lot of debt and the market was still valuing Smithfield cheaply.

Peer comparison

At $26 per share, Smithfield Foods, Inc. (NYSE:SFD) is worth $3.6 billion on the market. The market values Smithfield at only 7.3 times EV/EBITDA. Compared to its peers, Tyson Foods, Inc. (NYSE:TSN) and Hormel Foods, Smithfield is the smallest company. At $39 per share, Hormel has the total market cap of around $10 billion. Hormel could be considered to have the most expensive valuation among the three, at 11.5 times EV/EBITDA. Tyson Foods is trading at $24 per share, with a total market cap of $8.5 billion. Tyson seems to be valued the cheapest at only 5.7 times EV/EBITDA. Hormel Foods deserves the highest valuation, as it is the most profitable company among the three, with an 8.8% operating margin, while the operating margins of Smithfield and Tyson are only 4.4% and 3.8%, respectively.

My Foolish take

Smithfield Foods, Inc. (NYSE:SFD) could be considered a long term investment opportunity for investors due to its market leading position in the global pork business, its expansion opportunity in China, and a reasonable valuation.

The article This Pork Business Seems To Be Quite Attractive originally appeared on Fool.com and is written by Anh HOANG.

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