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Bull of the Day: Tyson Foods (TSN)

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Tyson Foods (TSN - Free Report) is a Zacks #1 (Strong Buy) that is the biggest U.S. chicken company. Tyson produces, distributes and markets chicken, beef, pork as well as prepared foods.

The company recently had a beat on EPS, which helped the stock hit 2021 highs. But the market pullback caused the stock to fall back to pre-earnings levels.  

Investors should be watching this pullback closely for a buy. Not only are earnings looking up, but the company has introduced a new productivity program that could reap benefits for shareholders into 2022.

About the Company

Tyson's products are marketed and sold primarily by sales staff to grocery retailers, grocery wholesalers, meat distributors, military commissaries, industrial food processing companies, chain restaurants, international export companies and domestic distributors.

The company has 137,000 full time employees, is headquartered in Springdale, Arkansas and was founded in 1935.

The company has a market cap of about $30 Billion and has Zacks Style Scores of “A” in Value but “D” in Growth. The Forward PE is just 11 and the company pays a 2.2% dividend.

Q4 Earnings

Tyson reported EPS earlier this month seeing a surprise to the upside of 4.5%. Revenues also came in above expectations and they guided FY22 higher. Tyson also bumped up their dividend slightly and sees Capex at $2B.

The healthy quarter comes despite higher commodity prices which have brought year over year revenues lower. Chicken was off 6%, beef and pork were both off 15%, while prepared foods was lower by 12.5%. Tyson is raising meat prices as costs escalate and avenge beef prices have climbed by one-third in the most recent quarter.

On the call, the CEO commented that the worst of the labor shortfall is behind them. Their poultry plants are almost fully staffed as they head into the end of the year.

Tyson Foods, Inc. Price and EPS Surprise

Tyson Foods, Inc. Price and EPS Surprise

Tyson Foods, Inc. price-eps-surprise | Tyson Foods, Inc. Quote

The EPS beat was the company’s sixth straight. While the magnitude this quarter was lower then the last five earnings, estimates are ticking higher into next year.

Estimates

Over the last 60 days, estimates are trending upwards. For the current quarter, we have seen estimates raised by 17%, from $1.72 to $2.01. For the current year, we have seen a 9% move higher in that same time frame.

Analysts are citing adjusted pricing and credit management for a job well done in a tough environment.

While earnings and estimates look good, the market is looking forward to some cost savings efforts, which could help the bottom line through 2024.  

$1 Billion Productively Program

Beginning next year, Tyson is launching a new productivity program that will target $1B in savings by the end of 2024. This program will be “designed to drive a better, faster and more agile organization that is supported by a culture of continuous improvement and faster decision making”.

The impact should be felt early next year as they are shooting for $300-$400 million in fiscal 2022.

The Technicals

The stock has done well in 2021, up about 25% year to date. However, it’s still off almost 15% from the pre-COVID levels seen in early 2020. Value investors see opportunity here, but let’s go over some levels to possibly step in on a pullback.

As of this writing, the 50-day moving average is $80.20 and the 200-day is just under $77. The stock has recently broken trendline support and looks to test that 50-day. If it holds investors can step in and look for those all-time highs of $94.24 sometime next year.

If we get a broad market sell off and that 50-day support breaks, look for the 200-day to come into play. A buy zone of $77-79 should be a good long-term opportunity for value investors.

Bottom Line

Tyson has proven itself in a tough environment and stockholders have been rewarded this year. As the stock comes off its recent highs new investors should watch the support levels for an opportunity to get long for continued momentum higher in 2022.


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