Pilgrim's Pride (PPC) is likely faced with margin pressure in Q3 amid a significant supply increase in the US chicken market this year, UBS said in a preview note Monday.

The report said pricing conditions weakened further in Q3, as the composite fell 4% quarter-on-quarter, while certain cuts posted sharper declines, including breast down 19% QoQ.

"Combined with higher feed costs, we expect this backdrop to have pressured PPC's 3Q US margins," the note said. "Looking ahead, the supply increase is set to continue."

UBS analysts said their EBIT and EBITDA estimates are below consensus due to the US business.

UBS kept its neutral rating and a $28 price target.

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