JPMorgan's Food Picks: Up Sanderson Farms, Down Hershey And Mead Johnson

JPMorgan issued three company notes highlighting key players in the food industry.

Analysts Ken Goldman and Joshua Levine downgraded Hershey Co (NYSE: HSY) from Buy to Neutral and lowered their price target from $97 to $89; Downgraded Mead Johnson Nutrition CO (NYSE: MJN) from Overweight to Neutral and lowered their price target from $85 to $77; And upgraded Sanderson Farms, Inc. (NASDAQ: SAFM) from Neutral to Overweight and raised their price target from $81 to $89.

Hershey

"We are downgrading the HSY shares to Neutral from Overweight to reflect our lack of confidence that earnings growth will outperform the industry average. It is increasingly likely, in our opinion, that management's outlook for annual growth of 3-4 percent in the candy/mint/gum US category will prove optimistic over time."

JPMorgan believes that Hershey may struggle in 2016 due to a slowdown in the U.S. chocolate category, increased competition, and peer-average bottom line growth.

Mead Johnson Nutrition

"We are Neutral the MJN shares. With China's economy worsening and numerous global risks that may affect MJN's sales and margins, we think it is prudent to be on the sideline...The US business seems to be slowing, China's economy is worsening, the yuan may be devalued further, Latin America is somewhat of a black box."

JPMorgan analysts noted that one positive catalyst for Mead Johnson going forward may be identifying operational cost efficiencies, however, this may not be realized until 2017.

Sanderson Farms

"Although some industry headwinds persist – particularly a growing layer flock – we are seeing multiple signs of improvement across the chicken landscape. Over the past month, the big bird chicken price has begun to rally and feed costs have headed lower, both providing near-term tailwinds for chicken processor margins."

JPMorgan believes that Sanderson Farm's share price could be driven higher in the near term due to seasonal factors, export improvements and lessening supply growth. Pricing could be further improved due to the company's strength in the chicken industry which could drive profitability in 2016.