Sanderson Farms (SAFM) – Closing Long Position – up 80% vs. S&P up 71%
We made Sanderson Farms (SAFM: $136/share) a Long Idea on August 12, 2015 and reiterated the Long Idea on August 17, 2017 and January 30, 2019. At the time of the original article, SAFM received a Very Attractive rating. Our long thesis highlighted the firm’s consistent net operating profit after-tax (NOPAT) growth, rising demand for chicken products, and its undervalued stock.
This report, along with all of our research, utilizes our superior data to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”
During the 5+ year holding period, SAFM outperformed as a long position, rising 80% compared to a 71% gain for the S&P 500.
The firm’s return on invested capital (ROIC) has declined from 20% in 2015 to -3% TTM while its NOPAT margin declined from 8% to -2% over the same time. Given the deterioration in fundamentals, SAFM no longer presents quality risk/reward and earns an Unattractive rating. We’re closing this position.
Figure 1: SAFM vs. S&P 500 – Price Return – Successful Long Idea
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
This article originally published on November 23, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
 Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.
 Our core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. The paper empirically shows that our data is superior to “Operating Income After Depreciation” and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).