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Tyson Foods (TSN) Prospects Look Attractive: Time to Buy?

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Tyson Foods Inc. (TSN - Free Report) seems to be a good choice for investors looking for a stock with wholesome return in a relatively safe consumer staples sector. Consistent product innovation, brand enhancing activities and adaptation to changing demand of consumers are likely to help the company stay on growth trajectory in 2017.

Solid Earnings Trend

The company has shown an uptrend in terms of earnings, as evident from its earnings beat in the trailing four quarters with an average earnings surprise of 6.8%. Further, earnings are anticipated to grow by 11% in the next five years.

The company has made a promising start to fiscal 2017, driven by the strong performance of Core 9 categories and foodservice top-tier offerings, which continue to outperform the industry. In the recently concluded first-quarter fiscal 2017 results, both earnings and revenues beat the Zacks Consensus Estimate. Earnings of $1.59 per share beat the Zacks Consensus Estimate of $1.27 by 25.1% and surged 38% from the year-ago tally of $1.15 on the back of higher margins. Net sales of $9.182 billion inched up 0.3% year over year and beat the consensus mark by 2%.

The shares have declined only 3.7% in the past one year, better than the Zacks categorized Food-Meat Products industry which has witnessed a slump of 11% in the same time frame.

Raised Full Year Guidance

The company also raised fiscal 2017 guidance in sync with the earnings call. The company anticipates earnings to be in the range $4.90–$5.05, representing a 12% increase year over year compared with a range of $4.7–$4.85 expected earlier.

Momentum in Chicken Segment

Management stated that the chicken and prepared foods margins have returned to their normalized levels of 9–11% backed by a 2% gain in chicken supply as well as constant input cost. Tyson Foods believes that the chicken segment will once again be at/or above the upper end of the normalized range in fiscal 2017.

Investment in Meat Substitutes Expected to Yield Profit

Tyson Foods’ strategy of adapting itself to changing consumer demand is expected to aid it sustain share in the food industry. This is evident from the company’s initiative of setting up a venture capital fund worth $150 million to invest in companies that develop meat substitutes, in order to adapt and cater to the growing demand. Notably, Tyson recently bought a 5% stake in a plant-based protein producer, Beyond Meat. Management has marked this takeover as its first step toward upping the ante for investment in meat substitutes.

The company’s endeavor to expand portfolio to include meat substitutes is commendable as it is a growing category. A recent study has shown that per capita consumption of meat, particularly high-protein red meat, has witnessed a decline in the developed countries over the years. Increasing health consciousness of the people, change in dietary plans and risk of outbreak of animal diseases are leading to low consumption of meat products.

However, Tyson has been witnessing soft results in the Beef, Chicken and Prepared Foods segment. Lower cattle supply and higher fed cattle costs have been responsible for the sluggishness in the segment. The chicken segment too is facing several transitory headwinds of late. However, these headwinds are transitory in nature and the company might be able to steer clear of these difficulties with its recent endeavors. Taking the pros and cons into regard, we feel it will be a prudent decision to buy the stock for now.

Zacks Rank & Other Stocks to Consider

Tyson carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Other favorably placed stocks in the consumer staples sector worth considering include, Helen of Troy Limited (HELE - Free Report) , Pinnacle Foods Inc. and ConAgra Foods Inc. (CAG - Free Report) all carrying the same Zacks Rank as Tyson Foods. While Helen of Troy has an expected earnings growth rate of 10.8%, Pinnacle Foods has an expected earnings growth rate of 8.3% and ConAgra Foods has an expected earnings growth rate of 8%.

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