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Tyson Foods: Poultry Firm Eyes China and Beyond Meat

08/28/2019 5:00 am EST


John Buckingham

Editor, The Prudent Speculator

Tyson Foods (TSN) saw its shares surge after the protein producer reported fiscal Q3 2019 financial results, explains value investing expert John Buckingham, money manager and editor of The Prudent Speculator.

The company posted revenue of $10.88 billion, falling short of consensus expectations of $11.05 billion, but while analysts were looking for adjusted EPS of $1.44 for the period, Tyson delivered $1.47.

While the quarter was generally in line, the catalyst for the stock move was management’s upbeat guidance around its protein offerings moving forward given the worse-than-expected devastation to the hog population in China from the African Swine Fever virus.

“Overall, third quarter earnings were in line with our expectations,” said CEO Noel White. “Volume growth in our core retail lines continues to outpace other large food companies and the total food and beverage category, driven primarily by our new product innovation.”

Mr. White continued, “The African Swine Fever outbreak continues to take its toll on hog supplies in Asia; however, we have not yet experienced significant benefits to our Pork, Chicken or Beef segments. Given the magnitude of the losses in China’s hog and pork supplies, the impending impact on global protein supply and demand fundamentals is likely to be a multi-year event.”

He concluded, “We are maintaining our guidance of adjusted earnings of $5.75-6.10 per share for fiscal 2019. With a strong export environment expected to continue into next year, we’re optimistic about the earnings potential for each of our segments in fiscal 2020.”

With the havoc caused by the African Swine Fever, Chinese pork production is expected to materially decrease, which should result in increased imports. Whether or not there is a trade deal between the U.S. and China, we think Tyson will benefit for years to come.

Further, besides the potential of the high-margin Prepared Foods segment, we like that Tyson is working on capturing some of the momentum in the fast-growing alternative proteins category.

Given the relationships the company has and its preparation facilities and logistics, we would think with the right offerings Tyson could really pressure the likes of current Wall Street darling Beyond Meat (BYND).

We also believe that in the future, chicken can take share from other protein sources as it offers a relatively better cost and health profile to consumers. We also think that prepared foods and increasing protein consumption around the globe, especially in emerging economies, provide a solid footing for top-line growth.

Despite shares being up more than 65% this year, Tyson Foods currently trades at 13.8 times next 12-months EPS and carries a dividend yield equal to that of the 10-year U.S. Treasury bond. Our target price for the stock has been boosted to $101.

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