Tyson: A Timely Thanksgiving Idea

11/28/2019 5:00 am EST


Jason Clark

Contributing Editor, The Prudent Speculator

Despite reporting fiscal 2019 Q4 results that trailed consensus analyst expectations, Tyson Foods (TSN) said it believed fiscal 2020 would be very strong for its operations, notes Jason Clark, value investor and contributig editor to The Prudent Speculator.

For Q4, the protein producer posted revenue of $10.88 billion (vs forecasts looking for $10.99 billion) and adjusted EPS of $1.21 came in 3% short of projections. The overall miss was driven by a lower-than-forecast quarter in prepared foods due to raw material inflation and distressed inventory sales.

Looking ahead, CEO Noel Mr. White added, “We’re very optimistic about fiscal 2020, and we currently expect to meet or exceed our long-term earnings algorithm of high single-digit adjusted earnings per share growth as we’re well positioned to take advantage of opportunities in the global marketplace.”

The company also said that it expects the havoc caused by the African Swine Fever, which has severely impacted Chinese pork production, to continue to be felt for years to come, which will likely keep pork prices elevated, benefiting Tyson.

Additionally, the company said that its plant-based nuggets from its Raised & Rooted business, a key competitor to headline grabbing Beyond Meat (BYND), is now available in 7,000 stores, almost double the number of stores since the last quarterly report, with an expanded presence at food-service companies.

Further, blended Raised & Rooted burgers, made with a mix of Angus beef and plant protein, began shipping this month. “Alternative protein projections remain strong, and we’re well-positioned to lead in this growing space,” concluded Mr. White.

Besides the potential for higher protein prices and 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 boasts, along with its preparation facilities and logistics, we would think that with the right offerings, Tyson could really pressure the Beyond Meat’s of the world.

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. And, increasing protein consumption around the globe, especially in emerging economies, should provide a solid footing for top-line growth.

Despite the stock price being up some 70% this year, the stock currently trades at 13.5 times next 12-month earnings per share  and carries a dividend yield about equal to that of the 10-year U.S. Treasury. Our target price for Tyson has been boosted to $104.

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