Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

After Smithfield Foods, Inc. (SFD), Which of these Companies Is Next?

With the news last week that Smithfield Foods, Inc. (NYSE:SFD) was being purchased by Chinese company Shuanghai International Holdings for $4.7 billion, it has me wondering if other U.S. meat companies are going to be acquired by Chinese companies. The Smithfield Foods and Shuanghai deal could touch off a flurry of mergers and acquisitions in the space. That would bode well for shareholders of Tyson Foods, Inc. (NYSE:TSN), Hormel Foods Corporation (NYSE:HRL), Pilgrim’s Pride Corporation (NASDAQ:PPC), and Sanderson Farms, Inc. (NASDAQ:SAFM).

Smithfield Foods, Inc. (NYSE:SFD)

Why the interest from the Chinese?

In China food safety has become an important issue. There have been concerns over tainted milk, and most recently there have been worries over bird flu. Chinese meat companies are anxious to acquire American know-how for their operations. The acquisition by Shuanghai won’t be as much China coming into the U.S., but more of Americans going to China to teach the Chinese how best to run their operations.

For China’s booming economy, meat producers are in a great position to deliver large quantities of meat if they can do so safely and in an environmentally friendly way. In China pork consumption has exploded as incomes have risen. China’s rising incomes have increased the portion of meat on the Chinese dining room table and decreased the amount of rice and noodles.

Why buy Smithfield Foods?

Smithfield Foods, Inc. (NYSE:SFD) is the world’s largest pork producer and is famous for its Smithfield hams. Smithfield has developed a genetic strain that allows it to produce the leanest hogs in the marketplace. Shuanghai International is the largest pork producer in China, and this acquisition is fueled by Shuanghai’s global ambitions.

Shuanghai imports all its slaughtering and processing equipment from the U.S. By purchasing Smithfield, the goal for Shuanghai is to increase the level and standard of food safety. Shuanghai was forced to publicly apologize in 2011 when illegal additives were found in its meat products. Since then, the company has pledged to focus on quality control. By acquiring Smithfield Foods, Inc. (NYSE:SFD), Shuanghai is looking to complete that process.

What about other U.S. meat companies?

Tyson Foods is engaged in the production and distribution of chicken, beef, pork and prepared foods. Tyson Foods is in the protein business, and we know that’s what the Chinese are after right now. After the Smithfield Foods, Inc. (NYSE:SFD) deal was announced, Tyson Foods hit a new 52-week high.

The focus at Tyson Foods has been on innovation to fuel the company’s overall growth strategy. In the U.S., the prepared food market business is growing rapidly as more Americans opt for convenience. The company forecasts top line sales growth of 3% to 4% per year. Where the company has the most room for growth is in the international market. International sales are forecast to increase 12% to 16% per year.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.