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On January 26, Zacks Investment Research upgraded Tyson Foods Inc. (TSN - Analyst Report) to a Zacks Rank #1 (Strong Buy) backed by its bright prospect in beef and chicken business and consistent innovation towards low fat meat production.

Why the Upgrade?

Strong momentum in the company's underlying business has prompted analysts to raise earnings expectations.

Tyson’s chicken segment has a strong momentum in the coming quarters. As more and more people in U.S. are becoming calorie conscious, there is an increasing trade down for high calorie red meat. Demand for chicken has risen for several past quarters in fiscal 2012 and has kicked off to a good start in 2013. Strong demand fueled higher pricing and this is expected to result in broader margin in the chicken segment in the coming quarter.

Moreover, company competitor Cargill has recently closed down its beef processing plant in Texas, which is expected to wipe out competition for Tyson in the area and also help the company to expand its customer base in the region.

The company’s endeavor to adapt to the changing demand of low calorie protein foods is also encouraging. Tyson recently joined forces with healthy and low calorie food specialist Hungry Girl Lisa Lillien to provide new variants of low-calorie meals for calorie-conscious customers. Since more and more people are opting for low calorie foods, this is also expected to help the company draw large number of foodies towards these healthy protein rich meals.

The company has beaten estimates in the fourth quarter as well as the fiscal year by 27.9% and 8.5%, respectively. Tyson’s financial position is also on a solid base. The debt- to-capitalization ratio improved to 28.7% in fiscal 2012 from 32.8% in fiscal 2010.

Cash and cash equivalents at the end of fiscal 2012 was at $2.0 billion, well above the targeted range of $1.2 to $1.5 billion. In the recently concluded quarter it hiked its quarterly dividend by a modest 25%.

Tyson Foods also has an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +8.5%. This, together with Tyson Zacks Rank #1, is a meaningful and leading indicator of a likely positive earnings surprise in the coming quarter.

Other Stocks to Consider

Other stocks that offer exposure attractive consumer staples segment is Smithfield Foods Inc. that carries a Zacks Rank #1 (Strong Buy). Two other stocks, Hormel Foods (HRL - Analyst Report) and Sanderson Farms Inc. (SAFM - Snapshot Report) carry a Zacks Rank #2 (Buy).

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