investingfromtheright

I am retired and take educated guesses on all things financial.

June 09, 2007

June 9, 2007: Aero Defense update and SFD, a pig in the pork





LHA-6 Amphibious Ship (click to enlarge) and one hog.


A few surprises in Aero Defense this week:

Raytheon (RTN) beat out General Dynamics for the $11.2b/10 year Army FOCUS program, for O and M of live, virtual and constructive training programs.

Northrup (NOC) received a $191m DDG-100 award, following a $2.4b award for the LHA-6 amphibious ship.

Dyncorp (DTN) beat the street estimate of 38 cents by a nickel. I really like this stock!

Boeing (BA) reported orders for 92 aircraft in May, triple the 33 orders in May of 2006.

Spirit AeroSystems (SPR) has expressed an interest in purchasing four of the six Airbus plants.

Boeing is not happy with Vought's performance on the 787 Dreamliner program. Look for a head or two to roll at Vought.


Smithfield Foods (SFD)

Smithfield Foods has a bright future, although most analysts do not see it that way at present. Feed costs are skyrocketing (thanks, global warming whackos and Ethanol),
SFD is not the lowest cost producer despite synergies via acquisitions that should have made it so and pork is still too cheap in the marketplace, plant utilization is approximately 80% (should be at 90% or above), premium cattle operations are not generating expected profits as SFD feeds its cattle longer on grain for quality, thus being caught in the same grain expense situation as hogs, lack of definitive programs to increase value-added meat products (and by-products, such as bio diesel fuel), poor European operations (especially Romania) and a full stock price valuation based upon current numbers (approximately $32./share).

That said, I like Smithfield Foods. Management knows the problems and, IMO, has the expertise and game plan to succeed. SFD made some wonderful acquisitions over the past few years which need time to breed success. Alternative energy bio diesel using animal carcass remnants and byproducts has yet to scratch the surface, eastern Europeans love pork - and that is where SFD is at, and once corn prices begin to cheapen, SFD will achieve the margins hoped for (some have researched using feed other than corn for many of the SFD operations).

I recommend SFD as a stock for an occasional glance over the next few months. It is a long term story that is now midway through Chapter One.

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