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Why CLSA Upgraded Tyson Foods to a ‘Buy’

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Nov. 20 2020, Updated 3:57 p.m. ET

Price movement

Tyson Foods (TSN) has a market cap of $28.4 billion. It rose 4.1% to close at $70.50 per share on October 10, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -6.1%, -2.4%, and 33.1%, respectively, on the same day.

TSN is trading 5.1% below its 20-day moving average, 5.4% below its 50-day moving average, and 7.2% 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 multi-factor selection. The YTD price movement of JKG was 8.0% on October 10.

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

  • Hormel Foods Corporation (HRL): $20.0 billion
  • Pilgrim’s Pride Corporation (PPC): $5.6 billion
  • Sanderson Farms (SAFM): $2.2 billion

Tyson Foods’s rating

On October 10, 2016, CLSA upgraded Tyson Foods’s rating to a “buy” from “neutral” and also set the stock’s price target at $86.00 per share.

Bloomberg reported, “Tyson Foods Inc., the largest US meat processor, had its stock rating raised by an analyst at CLSA who said a class-action complaint alleging price collusion among chicken producers was “baseless” and that investors should buy the company’s stock on strong pork and beef margins.”

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TheStreet reported, “JPMorgan said a recent lawsuit alleging the company colluded with other companies to raise chicken prices does not have sufficient evidence.” Added that, “In September, food distributor Maplevale Farms filed a lawsuit at the US District Court of Northern Illinois in Chicago against the company and other chicken producers including Koch Foods and Perdue Farms. The suit alleged that they purposefully limited supply since 2008 to drive chicken prices higher.”

TheStreet added, “Tyson disputed the claims on Friday and said it would defend itself in court.”

Performance of Tyson Foods in fiscal 3Q16

Tyson Foods (TSN) reported fiscal 3Q16[1. ended July 2, 2016] sales of $9.4 billion, a fall of 6.9% from the $10.1 billion reported in fiscal 3Q15. Sales of the company’s Chicken, Beef, and Prepared Foods segments fell 0.51%, 12.1%, and 0.06%, respectively. Sales of the Pork segment rose 5.3% between fiscal 3Q15 and fiscal 3Q16. The company’s gross profit margin and operating income rose 33.0% and 36.2%, respectively.

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

TSN’s cash and cash equivalents fell 71.4% and its inventories rose 1.4% between fiscal 4Q15 and fiscal 3Q16. Its current ratio rose to 1.8x, and its debt-to-equity ratio fell to 1.3x in fiscal 3Q16, compared with 1.5x and 1.4x, respectively, in fiscal 4Q15.

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Quarterly dividend

Tyson Foods (TSN) declared a 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 dividend will be paid on December 15, 2016, to shareholders of record at the close of business on December 1, 2016.

Projections

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

  • sales of ~$37 billion
  • capital expenditure of ~$725 million
  • net interest expense of ~$245 million
  • adjusted EPS of $4.40–$4.50
  • operating margin of more than 12% for the Chicken segment
  • operating margin of 1.5%–3.0% for the Beef segment
  • operating margin of more than 10% for the Pork segment
  • operating margin at the low end of 10%–12% for the Prepared Foods segment

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

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