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BMO Capital Increases Tyson Foods’ Price Target to $77 per Share

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Price movement

Tyson Foods (TSN) has a market cap of $27.6 billion. It rose by 0.54% to close at $74.47 per share on August 9, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.4%, 8.8%, and 40.3%, respectively, on the same day. TSN is trading 3.5% above its 20-day moving average, 11.4% above its 50-day moving average, and 23.8% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Mid Core ETF (JKG) invests 1.3% of its holdings in Tyson Foods. The ETF tracks a market-cap-weighted index of US mid-cap firms that exhibit both growth and value characteristics as determined by multifactor selection. The YTD price movement of JKG was 10.2% on August 9.

The Consumer Staples Select Sector SPDR Fund (XLP) invests 1.5% of its holdings in Tyson Foods. The ETF tracks a market-cap-weighted index of consumer staples stocks drawn from the S&P 500.

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

  • Hormel Foods (HRL): $19.7 billion
  • Pilgrim’s Pride Corporation (PPC): $5.8 billion
  • Sanderson Farms (SAFM): $2.0 billion

Tyson Foods’ rating

BMO Capital has increased the price target of Tyson Foods to $77 from $72 per share and rated the stock as “market perform.” TheStreet Ratings rated the stock as a “buy” with a score of A+.

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Performance of Tyson Foods in fiscal 3Q16

Tyson Foods reported fiscal 3Q16 sales of $9.4 billion, a fall of 6.9% compared to sales of $10.1 billion in fiscal 3Q15. Sales of the chicken, beef, and prepared foods segments fell by 0.51%, 12.1%, and 0.06%, respectively. On the other hand, sales of the pork segment rose by 5.3% in fiscal 3Q16 compared to fiscal 3Q15. The company’s gross profit margin and operating income rose by 33.0% and 36.2%, respectively, in fiscal 3Q16 compared to the prior year period.

Its net income and EPS (earnings per share) rose to $484.0 million and $1.25, respectively, in fiscal 3Q16 compared to $343.0 million and $0.83, respectively, in fiscal 3Q15. It reported adjusted EPS of $1.21 in fiscal 3Q16, a rise of 51.3% compared to fiscal 3Q15.

TSN’s cash and cash equivalents fell by 71.4%, and its inventories rose by 1.4% in fiscal 3Q16 compared to fiscal 4Q15. Its current ratio rose to 1.8x, and its debt-to-equity ratio fell to 1.3x in fiscal 3Q16 compared 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 a quarterly dividend of $0.15 per share on its Class A common stock and $0.135 per share on its Class B common stock. The dividends will be paid on December 15, 2016, to shareholders of record at the close of business on December 1, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • sales of ~$37 billion
  • capital expenditures of ~$725 million
  • net interest expense of ~$245 million
  • adjusted EPS in the range of $4.40 to $4.50
  • chicken segment operating margin of more than 12%
  • beef segment operating margin in the range of 1.5%–3.0%
  • pork segment operating margin of more than 10%
  • prepared foods segment operating margin at the low end of 10%–12%

The company has made the following projections for fiscal 2017:

  • sales growth of 1%
  • interest expense of $225 million
  • pork segment operating margin above 6%–8%

For an ongoing analysis of this sector, please visit Market Realist’s Consumer Discretionary page.

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