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BMO Capital Downgrades Tyson Foods to ‘Market Perform’

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Price movement of Tyson Foods

Tyson Foods (TSN) has a market cap of $22.6 billion. It fell by 3.7% to close at $60.88 per share on June 6, 2016.

The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -6.4%, -8.1%, and 14.7%, respectively, on the same day. This means that TSN is trading 7.6% below its 20-day moving average, 7.8% below its 50-day moving average, and 11.3% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Mid-Cap Value ETF (JKI) invests 1.2% of its holdings in Tyson Foods. This ETF selects from the 70%–90% range of the US market capitalization, sorting value stocks based on ten factors. The YTD price movement of JKI was 8.3% on June 6, 2016.

The market caps of Tyson Foods’ competitors are as follows:

  • Hormel Foods Corporation (HRL) — $18.0 billion
  • Pilgrim’s Pride Corporation (PPC) — $6.3 billion
  • BRF S.A. (BRFS) — $11.2 billion

BMO Capital downgraded Tyson Foods

BMO Capital has downgraded Tyson Foods rating to “market perform” from “outperform.” It also reduced the stock price target from $78.00 per share to $69.00 per share.

TheStreet Ratings rated Tyson Foods as a “buy” with a score of “A+.”

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Performance of Tyson Foods in fiscal 2Q16

Tyson Foods (TSN) reported fiscal 2Q16 sales of ~$9.2 billion, a fall of 8.1% compared to sales of ~$10.0 billion in fiscal 2Q15. Sales of the Chicken, Beef, Pork, and Prepared Foods segments fell by 3.3%, 11.9%, 1.2%, and 3.6%, respectively, in fiscal 2Q16 compared to fiscal 2Q15.

The company’s cost of sales as a percentage of sales fell by 3.3%, and its operating income rose by 28.7% in fiscal 2Q16 compared to fiscal 2Q15.

Its net income and EPS (earnings per share) rose to $432.0 million and $1.10, respectively, in fiscal 2Q16, compared to $310.0 million and $0.75, respectively, in fiscal 2Q15.

Tyson Foods’ cash and cash equivalents fell by 63.1%, and its inventories rose by 4.0% in fiscal 2Q16 compared to fiscal 4Q15. Its current ratio rose to 1.9x, and its debt-to-equity ratio fell to 1.3x in fiscal 2Q16. This compares to a current ratio and a debt-to-equity ratio of 1.5x and 1.4x, respectively, in fiscal 4Q15.

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Quarterly dividend

Tyson Foods declared its quarterly dividend of $0.15 per share on its Class A common stock and ~$0.14 per share on its Class B common stock. The dividends will be paid on September 15, 2016, to shareholders of record at the close of business on September 1, 2016.

Projections

Tyson Foods (TSN) has made the following projections for fiscal 2016:

  • sales of ~$37 billion, including a drop in sales projection due to a fall in beef, pork, and chicken prices
  • capital expenditures of ~$850 million
  • net interest expense of ~$245 million
  • expected Chicken segment’s operating margin of more than 12%
  • expected Beef segment’s operating margin in the range of 1.5%–3.0%
  • expected Pork segment’s operating margin of ~10%

Next, we’ll discuss Pilgrim’s Pride.

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