12 January 2009
The Monthly Mouthful
From the Field to the Table
Christina McGlone
Research Analyst
(1) 203 863 2283
christina.mcglone@db.com
Jason West, CFA
Research Analyst
(1) 617 217 6256
jason.west@db.com
Highlights
In this monthly piece, our agribusiness/protein and restaurant teams take a
collaborative approach to study the issues surrounding the supply of commodities
and demand stemming from the restaurant sector.
Deutsche Bank Securities Inc.
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factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
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http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Market Update
Top picks
Tyson Foods (TSN.N),USD8.45 Buy
Bunge (BG.N),USD51.42 Buy
Burger King (BKC.N),USD22.47 Buy
Companies featured
Archer-Daniels-Midland (ADM.N),USD27.96 Hold
Bunge (BG.N),USD51.42 Buy
Corn Products International (CPO.N),USD29.50 Hold
Hormel Foods (HRL.N),USD30.41 Hold
Sanderson Farms (SAFM.OQ),USD31.45 Hold
Smithfield Foods (SFD.N),USD12.82 Hold
Tyson Foods (TSN.N),USD8.45 Buy
Burger King (BKC.N),USD22.47 Buy
McDonald's (MCD.N),USD60.07 Hold
YUM Brands, Inc. (YUM.N),USD30.62 Hold
Texas Roadhouse (TXRH.OQ),USD8.27 Hold
Panera Bread Co (PNRA.OQ),USD51.31 Hold
Chipotle Mexican Grill, Inc (CMG.N),USD53.41Hold
Ruth's Chris (RUTH.OQ),USD2.14 Hold
Related recent research Date
Protein Processing Basics
Christina McGlone 20 Oct 2008
Global Markets Research Company
Most indicators suggest a recovery is still a ways off
We track several key macro-economic data series to gauge the outlook for
restaurant spending. Nearly all of these series continue to point to downward
pressure on spending, with the only positive factor being gasoline prices. With
consumer confidence currently at 38.0 versus 90.6 this time last year, we find it
difficult to be optimistic on the outlook for discretionary spending in 2009. As
such, we expect fast food to continue to post better sales trends than casual
dining chains given better affordability and convenience.
Prefer protein to agribusiness
With a key source of demand for corn and soybeans shrinking owing to herd
liquidation in many parts of the world, we prefer protein processors to
agribusiness processors. 2009 will be the first year since 1973 that output of all
four major proteins are down. However, demand uncertainty (particularly export)
exists and, thus, pricing power is at risk. Within protein, we find the chicken
industry most attractive for three reasons: (1) it is the least expensive protein, (2) if
the drop in demand exceeds the drop in supply, production can be re-adjusted to
result in even lower production over an approximate 10-week time-frame, and (3)
chicken prices are beginning to respond to production cuts.
Top Picks
Our top pick in the restaurant sector is Burger King, as we believe the company is
well-positioned for a difficult macro environment given high convenience and
affordability and a predominantly franchised business model. Internal sales drivers,
accelerating unit growth and a discounted valuation versus peers also support our
positive outlook. Our top recommendation in the protein space is Tyson owing to
our positive view on chicken. While near-term trends are challenging owing to
deteriorating beef margins and corn/soybean meal hedges, we believe that these
challenges are fully discounted in the stock. We continue to be positive on Bunge,
long-term, but note that company should meet with several near-term challenges,
including tighter crush margins, weaker soybean-product demand, significantly
lower Brazilian fertilizer demand combined with high fertilizer inventories. We are
projecting $0.92 for Bunge’s 4Q08, compared to guidance of $2.65-$2.95 and
consensus of $2.00.
Valuation and risks
We are employ a variety of valuation methods for the restaurant, protein and
agribusiness sectors, including multiples analysis (P/E, EV/EBITDA and EV/sales),
DCF models, and sum-of-the-parts models. Key risks include volatility in grain and
energy markets, weather, trade barriers/political tensions, declining consumer
confidence/wealth, and changes in input costs ,such as labor.

Table of Contents
Monthly Highlights............................................................................ 3
Commodity update ...................................................................................................................3
Restaurant update.....................................................................................................................3
2009 Outlook – Ag/Protein................................................................ 5
2009 Outlook ............................................................................................................................5
Grains – SA crop concerns a focus ...........................................................................................5
Protein – Supply is bullish, demand is uncertain .......................................................................5
Protein Processors....................................................................................................................6
Agribusiness Processors...........................................................................................................6
Valuation/Risks..........................................................................................................................6
Risks ........................................................................................................................................7
2009 Outlook – Restaurants.............................................................. 8
Stay defensive ..........................................................................................................................8
Most key indicators continue to point downward.....................................................................8
Stock rally belies fundamentals...............................................................................................11
TOP PICK: Burger King (BKC: Buy, $28 price target)...............................................................12
Texas Roadhouse (TXRH: Hold, $7.50 price target) ................................................................12
Commodities are a positive, but optimism may be overdone ................................................13
Promotional environment heating up......................................................................................14
How have food costs impacted profitability?..........................................................................14
Where are consensus margin expectations? ..........................................................................15
Key commodity pricing trends for restaurants ........................................................................16
Key commodity exposures and earnings sensitivities.............................................................18
Company-specific commodity outlook....................................................................................19
Chicken............................................................................................. 21
Beef................................................................................................... 25
Pork................................................................................................... 30
Corn .................................................................................................. 35
Soybeans.......................................................................................... 36
Wheat ............................................................................................... 37
Upcoming Events Calendar ............................................................ 38