Shares of Tyson Foods Inc (TSN.N) fell 11.5 percent, their biggest intraday percentage drop in more than six years, after a brokerage said a class action lawsuit against the largest U.S. meat processor over industry collusion was "powerfully convincing".
The lawsuit filed last month alleged that Tyson colluded with Koch Foods and others in the broiler chicken business to reduce production since 2008.
Tyson Foods disputed the allegations in the complaints as well as the speculative conclusions in the report.
Shares of other chicken producers named in the lawsuit, Pilgrim's Pride Corp (PPC.O) and Sanderson Farms Inc (SAFM.O), were also down about 4 percent in afternoon trading on Friday.
Pivotal Research Group analyst Timothy Ramey said he was not alleging that Tyson colludes on chicken pricing or production.
However, the brokerage downgraded the company's stock to "sell" from "buy" and cut its price target to $40 from $100, saying the lawsuit would lead to intense scrutiny of the sector.
Tyson's shares were down 9 percent at $67.71 in afternoon trading.
The company's annual profit has grown from $86 million in 2008 to $1.22 billion last year, partly helped by its acquisition of Jimmy Dean sausage maker Hillshire Brands in 2014. The chicken business, Tyson's second-largest by sales, accounted for 63 percent of the company's operating income last year.
Pivotal Research is the only brokerage with a "sell" rating among the 11 brokerages covering the company. At least six brokerages rate the stock "buy" or higher and four "hold".
"Our thesis is that the class-action suit has merit and will lead to intense scrutiny of the broiler sector," Ramey wrote.
"We have long wondered how an industry marked by such volatility and lack of discipline could morph to a highly disciplined industry where production remains constrained and pricing remains high," Ramey added.
Tyson Foods said it had not made any changes to its business practices in response to the complaint.
(Reporting by Gayathree Ganesan and Sruthi Ramakrishnan in Bengaluru; Editing by Shounak Dasgupta)