Maple Leaf Farms (TSE:MFI), a food production company in Canada, is getting out of the pork game. This move was apparently welcomed by shareholders because it was greeted with a hefty surge in share prices, up over 5% in Tuesday morning’s trading.
Under the new plan, Maple Leaf Foods will focus its efforts on “consumer packaged goods,” and its pork business will instead be its own publicly-traded operation. The plan to spin off the pork shop calls for Maple Leaf Foods to hold 19.9% of the new company while handing out the remaining shares to current Maple Leaf shareholders.
As for the why, CEO Curtis Frank noted that the new company would have “…a sharpened execution focus with its own dedicated management team, and the financial independence to pursue its own value creation strategy.” Further, the new pork company would have a client right from day one: Maple Leaf Foods itself, which would, in turn, benefit from a “secure supply of pork at market prices.”
Processing Plant Closures
This sounds like a great plan overall, but there’s one key issue with it that kind of makes things a little shakier. In fact, back in late May, Maple Leaf was closing processing plants. Specifically, it closed the Brantford processing plant, which by itself handled over nine million kilograms of poultry products annually. It also employed 150 workers and played a big part in the Brantford local economy.
The reasoning was, well, reasonable enough. Reports noted that the Brantford plant needed no shortage of upgrades to continue operating, and thus, closing it now proved the more cost-effective option. Still, that’s several million kilograms of poultry not being processed anymore.
Is MFI a Good Buy Right Now?
Turning to Wall Street, analysts have a Strong Buy consensus rating on MFI stock based on five Buys assigned in the past three months, as indicated by the graphic below. After a 6.47% loss in its share price over the past year, the average MFI price target of C$30.10 per share implies 27.27% upside potential.
