Taking A Closer Look At Tyson Foods And The Chicken Complaint

Tyson Foods, Inc. (NYSE: TSN) shares were down 8.9 percent on Friday following a complaint of alleged collusion among chicken producers.

Pilgrim’s Pride Corporation (NASDAQ: PPC) and Sanderson Farms, Inc. (NASDAQ: SAFM) shares also sold off more than 4 percent each on the news.

JPMorgan analyst Ken Goldman doesn’t believe the complaint will ultimately have much of an impact on the companies mentioned above. Instead, he believes that much of Tyson’s Friday selloff can be attributed to a Pivotal downgrade on Friday. The firm cut Tyson’s rating from Buy to Sell.

JPMorgan, on the other hand, maintains its Neutral rating for Tyson.

Related Link: Tyson Foods Doesn't Like Being Sued Or Downgraded

“At this time, there seems to be insufficient evidence in the complaint, in our opinion, of any meetings, conversations, or any actual collusion,” Goldman explains.

According to Goldman, the complaint is primarily focused on the fact that the chicken industry pools certain anonymous data on plant efficiency. The complaint alleges that the industry may have cut back production based on this data and artificially restrained supply.

In fact, JPMorgan believes this data isn't relied upon to make any important business decisions.

Goldman adds that Sanderson’s inclusion in the complaint is puzzling given the fact that the company has increased production by 55 percent since 2008.

Ironically, the major reason JPMorgan is not bullish on Tyson is because the firm is expecting chicken fundamentals to worsen in the next year due to increases in production.