Bull of the Day: Tyson Foods (TSN)

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February 12, 2013 |
TSN

With the economy seemingly back on track, many investors have looked to higher beta stocks. However, there are also plenty of firms in corners like the consumer staples market which could still be great bets during this environment.

One such company is Tyson Foods (TSN - Analyst Report), the world’s largest fully-integrated producer, processor, and marketer of chicken and poultry-based food products. This firm may have been overlooked in the recent market surge, but recent trends suggest that it could still have plenty of room to run, while still being a lower risk stock.

Impressive Earnings Estimate Trends

T SN has seen a big move higher in terms of analyst expectations over the past few weeks. With nine estimates on the company, six have moved higher in the past week for both the current quarter, and the current fiscal year periods.

If that wasn’t enough, the magnitude of these revisions has also been enormous. Current quarter estimates have jumped from 30 cents a share to 46 cents a share in the past 90 days, while full year estimates have leaped from $1.59 a share to $2.02 for the same time period.

These impressive moves suggest that many analysts are getting more bullish on the firm’s prospects in the near term, so some might be concerned about TSN living up to the hype. The company does have a solid history of beating estimates though, as it has surprised higher by an average of 14% in the past year, so it clearly can live up to lofty expectations.

Financials Are Also Strong

The company is trading at a reasonable PE (forward) below 12, while it also has a double-digit ROE as well. Debt to equity levels are now below 33%, so the firm certainly has some flexibility from a capital structure perspective.  

However, investors should note that the chicken business isn’t exactly an extremely profitable one. The firm has an operating margin below 2.25%, so any big setbacks could have a huge impact on profitability.

Still, TSN does have a commanding position in the broad industry so it is likely to have significant pricing power. The firm also should have a relatively easy time passing on costs to end-users, although there is some risk of substitution to other meats (but these, like beef, are usually more expensive anyway).

Outlook

Investors should note that Tyson Foods has surged in recent trading and that the company’s stock has nearly doubled in the trailing six month period. This obviously represents a huge level of outperformance for the company over and above the broad market, so some might be concerned about this trend continuing.

We like the prospects of this happening as the company has a Zacks Rank of #1 or ‘Strong Buy’, thanks in large part to the massive shift in earnings estimates as of late. This also represents an increase from a Rank of 2 just a week ago, so the outlook on Tyson is probably improving relative to the rest of the stock universe.

If that wasn’t enough to convince you that TSN still has potential, consider that the Zacks Industry Rank for the company is also extremely favorable. In fact, the ‘Food-Meat Producers’ category is currently the top Ranked industry in the entire market, suggesting that TSN is in good company, and worth a closer look by most investors.  

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