How Is Tyson Foods Valued after Fiscal 3Q16 Earnings?
What does a forward PE ratio mean?
In this article, we’ll use the forward PE (price-to-earnings) ratio to compare Tyson Foods (TSN) with its peers in the meat industry. The forward PE ratio indicates how much an investor is willing to pay for a company’s EPS (earnings per share) for the next four quarters. It’s measured by dividing a company’s current price by its EPS estimates for the next four quarters.
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Tyson Foods’ valuation decreased after earnings
In the above chart, you can see the forward PE ratios of Tyson Foods and its peers. Tyson Foods is trading at a PE ratio of 15.8x, as of August 9. Its ratio fell by ~2% after the results were released. The company raised its fiscal 2016 EPS guidance to $4.40–$4.50 due to its strong results in each of its segments. Analysts estimate a 43% rise in Tyson Foods’ earnings in fiscal 2016. However, it’s trading at a lower PE ratio than Hormel Foods. This is likely because its revenue might fall 10% in fiscal 2016 due to declining beef, pork, and feed prices.
Hormel Foods (HRL) is trading at a higher forward PE ratio than its peers. It’s trading at 22.8x, as of August 9. Analysts expect Hormel Foods’ adjusted EPS to rise by 21% and its revenue to increase by 2% in fiscal 2016. Sanderson Farms (SAFM) is trading at a PE ratio of 12.0x. Sanderson Farms’ earnings are expected to fall 27% in fiscal 2016. Its revenue will likely be flat compared to fiscal 2015. Weak exports and lower product prices could continue to affect the company’s fiscal 2016 results.
Pilgrim’s Pride (PPC) is trading at a PE ratio of 10.9x. Analysts expect Pilgrim’s Pride’s earnings to fall 21% in fiscal 2016 with a 1% decline in revenue. This justifies the lower PE ratio.
To gain exposure to these stocks, you can invest in the First Trust Consumer Staples AlphaDEX Fund (FXG). FXG invests 7% of its portfolio in Hormel Foods, Tyson Foods, and Pilgrim’s Pride. The SPDR S&P Dividend ETF (SDY) and the Vanguard Consumer Staples ETF (VDC) invest 0.48% and 0.55% of their respective portfolios in Hormel Foods.