The Zacks Analyst Blog Highlights: Tyson Foods, Pilgrim's Pride, Pinnacle Foods, Sanderson Farms and AutoNation

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Sep 02, 2014, 09:30 ET

CHICAGO, Sept. 2, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Tyson Foods, Inc. (NYSE:TSN-Free Report), Pilgrim's Pride Corp. (Nasdaq:PPC-Free Report), Pinnacle Foods, Inc. (NYSE:PF-Free Report), Sanderson Farms Inc. (Nasdaq:SAFM-Free Report) and AutoNation Inc. (NYSE:AN-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Friday's Analyst Blog:

Tyson Foods Completes Merger, Hillshire Brands Delisted

Tyson Foods, Inc. (NYSE:TSN-Free Report) has finally completed its much talked about $8.55 billion merger with packaged meat producer The Hillshire Brands Company, thereby inking the biggest-ever deal in the meat industry.

In accordance with the merger agreement, Tyson purchased all of the outstanding shares of Hillshire Brands for $63.00 per share in cash. Following the completion of the merger, Hillshire Brands will no longer trade on the NYSE and the Chicago Stock Exchange and will become a wholly owned subsidiary of Tyson. Tyson has also formed a new leadership team to include the existing senior leaders from Tyson Foods and Hillshire Brands.

Tyson Foods had formally struck an acquisition deal with Hillshire Brands on Jul 2, after a long fought bidding war with poultry producer Pilgrim's Pride Corp. (Nasdaq:PPC-Free Report). However, for the deal to materialize, Hillshire had to withdraw its offer to buy frozen foods maker Pinnacle Foods, Inc. (NYSE:PF-Free Report). Chicago-based Hillshire Brands had proposed to buy Pinnacle Foods for about $6.6 billion on May 12, including debt, in order to diversify its portfolio. (Read: Hillshire to Buy Pinnacle Foods for $6.6B).

Tyson also had to agree to divest its Heinold Hog Markets, a unit of Tyson Hog Markets to get the approval from the Antitrust Division of the Department of Justice. Heinold Hog Marketsbuys aged hogs from independent pig farmers for sale to sausage and other meat processors. Hillshire purchased hogs from Heinold Hog Markets to make sausages for its Jimmy Dean and Hillshire Farm brands. (Read: Tyson (TSN) Wins Antitrust Approval for Hillshire Merger).

The combined entity will boast a solid portfolio including recognized brands such as Tyson, Wright, Jimmy Dean, Ball Park, State Fair and Hillshire Farm. Moreover, it is expected to bring more than $40 billion in annual sales and generate synergy savings of $225 million in fiscal 2015 and more than $500 million by fiscal 2017.

Tyson's merger with Hillshire Brands will give the company a stronger foothold in the prepared foods business. Tyson has been suffering from strained beef, pork and poultry supplies lately. Moreover, an unrelenting drought in California and a second outbreak of a deadly pig virus led to soaring pig prices.

The merger would possibly make Tyson the industry leader in chicken production and increase its margins in other categories such as desserts and lunch meats, etc. Tyson will also benefit from the strength of Hillshire's products in the breakfast category where the former has little presence. The purchase would also improve Tyson's economy of scale with more customers and shelf space.

Tyson currently holds a Zacks Rank #3 (Hold). Sanderson Farms Inc. (Nasdaq:SAFM-Free Report) is a better-ranked meat company with a Zacks Rank #1 (Strong Buy).

AutoNation Seeks Growth on Expansion, Buybacks

On Aug 28, 2014, we issued an updated research report on AutoNation Inc. (NYSE:AN-Free Report). This Zacks Rank #3 (Hold) stock reported a 4.6% negative earnings surprise in the last reported quarter.

AutoNation posted a 13.7% rise in earnings per share to 83 cents in the second quarter of 2014 from 73 cents in the same quarter of 2013. However, earnings per share missed the Zacks Consensus Estimate of 87 cents.

Meanwhile, the company is positioned to benefit from the recovery in the auto market, backed by its optimal brand and market mix as well as a disciplined cost structure. In the first half of 2014, the company's new vehicle unit sales increased 8.7% year over year. AutoNation expects its new vehicle sales in the U.S. to increase 3–5% to above 16 million units in 2014, banking on its innovative array of products and access to affordable credit.

AutoNation pursues an aggressive store expansion strategy to boost sales. In Jul 2014, AutoNation completed the acquisition of Roundtree Chrysler Dodge Jeep Ram in the Mobile, Alabama market. This marks the third store in the Mobile market and will support the company's strategy of enhancing its presence in existing markets. This is expected to boost the company's revenues as the store is expected to generate annual revenues of $95 million.

Further, AutoNation consistently enhances shareholders' value through buybacks. The company repurchased 3.5 million shares in the first half of 2014. As of Jul 16, 2014, AutoNation had around $336 million worth of repurchase authorization remaining and 119 million shares outstanding.

However, rising interest rates and expenditure related to the rebranding strategy are posing challenges to the company. In addition, a series of recalls being announced by automakers might adversely affect the resale value of vehicles, which will in turn hurt the used vehicle revenues of AutoNation. Moreover, strategic investments in digital technology are likely to mar margins.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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