Shares of the leading meat processor, Tyson Foods, Inc. (TSN - Analyst Report) reached a 52-week high of $34.38 on Wednesday, Dec 11, 2013. As per media reports, Tyson is recently investing heavily in China to bolster its presence in the booming meat processing market of the country. Consequently, its share price has been rising on investors’ confidence in the move. The share prices have been on the rise ever since Tyson reported solid fourth-quarter and full-year 2013 earnings and doubled its dividend pay.
The closing price of this meat processing company on Dec 11 was $33.93, yielding a year-to-date return of 69.8%.
Share Price Drivers
As per reports from the Wall Street Journal (WSJ), Tyson Foods is heavily investing to build its own farms in China. The farms will become operational from 2014. This move goes in accordance with the food safety requirements of the government of the country.
The huge super sanitary chicken farms have been built to accommodate almost 3 million chickens. Tyson has already built nearly 20 such farms in the country and aims to take the count to 90 by 2015.
Outside China, Tyson operates under a different model, where it buys chicken from independent farmers operating on a large scale. However, in China, there are numerous small-scale farmers and it is difficult to monitor the quality of these meat products.
The WSJ article also stated that retailers like Wal-mart Stores Inc. (WMT - Analyst Report) and Yum Brands Inc. (YUM - Analyst Report) have expressed that they are optimistic about Tyson’s move as it will reduce their risk of food contamination in China, which is currently a major issue in the country.
Tyson already has a strong position in China. Moreover, the outbreak of avian influenza ("bird flu") in the country has prompted people to refrain from buying local chicken products. This has opened up new opportunities for Tyson to increase export to China.
Moreover, the World Trade Organization passed a ruling stating that the tariffs imposed by China on certain imported American chicken products went against international fair trade practices. Tyson can now boost export to China in the coming quarters. Tyson’s presence in the country will be stronger once the farms become operational.
On Nov 14, 2013, Tyson reported solid earnings and revenue increase in the fourth quarter of 2013. Adjusted earnings of 70 cents grew 22.8% year over year on the back of strong sales growth and lower share count due to significant share buybacks during the quarter.
Tyson also maintained the fiscal 2014 sales guidance of $36 billion, which reflects its strategy to drive growth in domestic value-added chicken sales, prepared food sales and international chicken production.
On the same day, Tyson hiked its quarterly dividend by 50.0% to 75 cents per share payable on Dec 13, 2013, to shareholders of record as of Nov 29, 2013.
Other Stocks to Consider
Tyson carries a Zacks Rank #3 (Hold). A better-ranked food company is Hormel Foods Corp. (HRL - Analyst Report), which has a Zacks Rank #2 (Buy).