Merrill Upgrades Smithfield Foods to 'Buy'

Analyst Leonard Teitelbaum sees a substantial earnings benefit from Smithfield's deal to acquire Farmland's pork assets

Merrill Lynch upgraded Smithfield Foods (SFD ) to buy from neutral.

Analyst Leonard Teitelbaum says he upgraded Smithfield, the world's largest pork producer, due to an expected substantial earnings accretion. On Monday Smithfield said it will acquire Farmland Industries' pork assets, known as Farmland Foods. The total value of the deal, including pension obligations and other liabilities, is about $480 million.

With a net impact of 34 cents on fiscal 2005 (April) earnings per share, Teitelbaum raised the $1.75 fiscal 2005 earnings per share estimate to $2.09. Since the deal will most likely close by the end of 2003, he's keeping the $1.40 fiscal 2004 earnings per share estimate.

With Smithfield's strong position in the southeastern U.S., combined with Farmland's dominance in the Midwest, Teitelbaum says the two operations complement each other geographically. He has a $25 target.

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