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TSN Looks Inexpensive, but Low Pricing Could Limit Its Upside


Dec. 26 2018, Published 4:34 p.m. ET

Valuation at a record low

Tyson Foods (TSN) stock had dropped 37.4% this year as of December 24, weighed down by the company’s weak pricing and lower profitability. The company lowered its sales and earnings outlook for the year, disappointing investors.

However, TSN stock is now inexpensive—its forward PE multiple is 8.6x, ~29% lower than its historical average of 12.0x. TSN stock’s dividend yield is 2.8%.

Despite the stock’s low valuation, we’re cautious about it, as Tyson Foods’ sales are expected to only grow at a low-to-mid-single-digit percentage rate. Whereas we believe the demand for protein-rich foods and acquisitions could support Tyson’s top line, lower pricing due to a demand-supply imbalance could hurt sales. Also, Tyson Foods’ earnings are projected to fall year-over-year in fiscal 2019, reflecting lower average pricing and higher freight costs.

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Wall Street expects a huge upside

Analysts’ consensus target price of $69.60 for TSN implies a 37.1% upside based on its December 24 closing price of $50.75. Wall Street expects higher beef and chicken demand and Tyson Foods’ focus on its core business to drive its financials. Of the 16 analysts covering the stock, nine recommend “buy,” six recommend “hold,” and one recommends “sell.”


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