NEW YORK (AP) -- Shares of Tyson Foods Inc. rose Friday after an analyst upgraded the meat company, citing an improvement in the prospect for its beef business.
THE SPARK: Analyst Kenneth B. Zaslow of BMO Capital noted that Tyson could benefit from Cargill's announcement this week that it was idling a plant in Plainview, Texas. Zaslow noted that the closure would be a "game changer" for Tyson by reducing its risk profile and helping it continue to expand its performance in beef. He raised his rating on the Springdale, Ark., company to "Outperform" from "Market Perform."
THE ANALYSIS: The closure by Cargill comes as the number of cattle in the U.S. continues to fall as ranchers in central and southwestern states sold off millions of animals they couldn't afford to feed after the drought dried up pastures and sent the prices of hay and other feed skyrocketing. The slaughter began to slow in the fall as many ranchers tried to hold on to the relatively few cattle they had left.
Ranchers have said it will take years to rebuild their herds once the drought ends, and Cargill said it didn't expect business to rebound soon.
Beyond Cargill's plant closure, Zaslow also noted Tyson's significant structural improvements, including $1 billion in cost savings since its fiscal 2008. He also noted Tyson's moderating losses in its international chicken operations.
SHARE ACTION: In afternoon trading, shares of Tyson traded up 3 percent, or 64 cents, at $21.87. Zaslow set a $27 target on the stock implying he expects shares to rally 27 percent from Thursday's close.