Tyson Foods Stock: Fill Your Belly and Portfolio

Tyson Foods, Inc. (TSN) is a food-processing company. I am bullish on the stock.

I was recommending the stock to retail value investors during the darker days of the pandemic. Commentators characterized slaughterhouse and meatpacking plant management functioning cui bono. They called for plant closures.

Management made some flubs. Ultimately, management was able to keep the nation’s food supply safe and fluent, shelves filled, and protected shareholders’ equity. TSN exported food products to foreign nations suffering in the throes of the pandemic.

For instance, COVID-19 decimated China’s meatpacking workforce, while China’s hog market continued under siege from the African Swine Fever. Tyson’s record pork exports to China kept the people fed. The decisions kept Americans fed and our workers employed. By fall 2020, TSN reported revenue up 5.3% year-over-year, led by beef and pork exports.   

Food for the Body and Portfolio

I recommended retail value investors Buy TSN following the pandemic-induced share price collapse. TSN plunged from a January ’20 high of $93 to $54 per share in March. A year later, the share price began its climb over 18 months to ~$86.5, where it stands today.

93% of TSN’s revenue generates from food, the rest from consumer products. Tyson is the second largest processor and distributor of fresh, frozen, refrigerated chicken, beef, and pork. It is the largest American exporter of those three foods for human and animal consumption.

Tyson acquired 13 companies, including six in the last five years. They sold seven assets. In 2021, Tyson sold the pet treats business for $1.2 billion. M&As and joint ventures expanded Tyson’s footprint in China and India; it is expanding in Thailand, Malaysia, Australia, South Korea, the Netherlands, and Brazil.

TipRanks’ Smart Score

TSN deserves more bolstering. TipRanks assigns it a Neutral 4 out of 10 Smart Score. TipRanks’ investor sentiment is very positive. So is the news sentiment. Some 20 articles a week cover TSN, and many are bullish. The company’s ROE is 18.48%, and its technicals are in positive territory.

Tyson Foods Could Use Feng Shui

Tyson sales barely rippled after the company raised prices this summer, blaming inflation. Sales jumped after Tyson raised prices for chicken, beef, and pork. 

Exports expectations are strong. Poultry sales are expected to outstrip pork and red meat sales by 2027. “Chicken remains a top priority,” for Tyson management, the CEO stated. Meantime, Tyson pork exports to China and Southeast Asia surged in 2021.

Additional reasons I like TSN is low short interest, standing at 1.8%. The dividend yield is a respectable 2.1%, and investors enjoy nine years of dividend growth.

Q3, Q4, and Fiscal Year 2021 financials underpin the ~36% rise in share price over the past year, particularly since July. Tyson beat sales estimates in the second quarter. Q3 profit rose 42% to $749 million.

For the year, GAAP EPS rose 48% year-over-year; operating income rose almost as much; operating cash flow hit $3.8 billion; total and net debt dropped. Q4 had double-digit sales and earnings growth.

TSN is less volatile than the market. Its beta is 0.82. That is also a positive factor for retail value investors. Portfolios holding TSN are up 5.7% in the last 30 days.

Finally, Tyson has about $9.3 billion in debt and $17.7 billion in equity. It holds $2.5 billion in cash and investments, about $4.4 billion in inventory, and $2.4 billion in receivables. The debt is well-covered by cash flow and interest payments by EBIT. The debt has been reduced over the past five years.

Some Worries

Hedge funds and insiders took some profits over the last quarter when TSN moved into the high $70s. These trades are not affecting the share price.

Another challenge is the growing market for plant-based “meat” hybrids. Tyson is addressing the trend. A Tyson subsidiary arriving late in the trend and a small player specializing in plant-based “meat” offerings from nuggets to hamburgers are kicking off the alt-meat business in Asia.

Higher costs for feed ingredients negatively hit the Fiscal Year 2021 bottom line and cash holdings. Those prices might continue to rise. The company will also need cash for working capital, tax payments, litigation, and other matters. Tyson is paying 80,000 plant workers $50 million in bonuses for 2021.

Wall Street’s Take

Seven Wall Street analysts split on the stock. Three have a Buy rating, and four recommend a Hold. The consensus rating is a Moderate Buy. The average Tyson Foods price target is $91, implying 5.1% upside potential. Analyst targets range from a high of $103 to a low of $78.

Takeaway

TSN is a moderate growth company, and I believe investors undervalue it. I forecast the stock to move higher at a moderate pace. Tyson is consistently profitable, paying a nice dividend, and the share price appears at low risk for any precipitous drop.

Tyson Foods operates at the core of an industry critical to national political, social, and economic stability. 96% of its 120 thousand employees are vaccinated. Supply chain and inflation worries are in the rear-view mirror. Tyson’s share price is not volatile. I believe TSN is a good long-term investment for retail value investors.

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Disclosure: At the time of publication, Harold Goldmeier did not have a position in any of the securities mentioned in this article.