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Zacks Rank #5 (Strong Sell) stock Tyson Foods Inc ((TSN - Free Report) ) is the largest chicken company in the United States. Beyond chicken, the company also produces, distributes, and markets beef, pork, and an assortment of prepared foods under the Jimmy Dean name and other brands.
Earnings Need to Beef Up
From a size perspective, Tyson is the market-leading meats producer in the United States by far and has a hold on roughly 20% of the market share. However, this fact is already priced into shares. Is there room for much growth from here? Tyson’s dismal forward estimates suggest not much. This year, top-line growth is expected to slog along at a 2.8% growth rate, while bottom-line growth is expected to plunge 52.5%.
Image Source: Zacks Investment Research
Meanwhile, last quarter, earnings growth was an abysmal -70% year-over-year. The company’s lagging beef segment is one factor dragging down Tyson’s growth. In Q1, Tyson’s beef segment declined from $5,002 million to $4,723 million. The slowdown is not isolated to Tyson – the United States Department of Agriculture (USDA) projects fiscal 2023 domestic production to fall roughly 5% in the segment.
Inefficiency
One way for a slower-growing company (like Tyson) to thrive is to have high margins. Unfortunately, in the case of Tyson, gross margins are moving in the wrong direction. Higher competition, industry headwinds, and international currency movements are squeezing the meat producer. TSN’s gross margins are now at their lowest levels since 2016. The picture gets uglier When you compare TSN’s 10.49% gross margin to that of the S&P 500 (48.73).
Image Source: Zacks Investment Research
Lagging Price and Volume Action
Even ahead of fundamentals, the best arbiter of truth in the stock market is the price and volume action – it doesn’t lie. Like Tyson’s fundamental picture, its technical picture is dull. For example, S&P 500 has shot higher by 56.7% over the past five years while Tyson is down 15.7%.
Image Source: Zacks Investment Research
Zoom in a bit more, and the picture doesn’t get much prettier. The stock is clearly in a downtrend and is approaching the underside of the 50-day moving average – a zone where the stock failed the past four visits.
Image Source: Zacks Investment Research
Weak Industry
Outside of the general market and earnings estimates, the single most significant factor impacting the price of a stock is the industry group it is in. The Food–Meat Products group is in the bottom 9% of all industry groups tracked by Zacks. Industry group peers such as Hormel Foods ((HRL - Free Report) ) and Pilgrim’s Pride ((PPC - Free Report) ) also show poor earnings growth and weak technical action.
Bottom Line
Meat producers like Tyson Foods are facing several challenges that could lead to further declines in stock prices. Furthermore, Tyson’s fundamental picture is one of slowing growth and shrinking margins – a lethal combo. Lastly, the poor price and volume action confirms the fundamental picture laid out above.
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Bear of the Day: Tyson Foods (TSN)
Zacks Rank #5 (Strong Sell) stock Tyson Foods Inc ((TSN - Free Report) ) is the largest chicken company in the United States. Beyond chicken, the company also produces, distributes, and markets beef, pork, and an assortment of prepared foods under the Jimmy Dean name and other brands.
Earnings Need to Beef Up
From a size perspective, Tyson is the market-leading meats producer in the United States by far and has a hold on roughly 20% of the market share. However, this fact is already priced into shares. Is there room for much growth from here? Tyson’s dismal forward estimates suggest not much. This year, top-line growth is expected to slog along at a 2.8% growth rate, while bottom-line growth is expected to plunge 52.5%.
Image Source: Zacks Investment Research
Meanwhile, last quarter, earnings growth was an abysmal -70% year-over-year. The company’s lagging beef segment is one factor dragging down Tyson’s growth. In Q1, Tyson’s beef segment declined from $5,002 million to $4,723 million. The slowdown is not isolated to Tyson – the United States Department of Agriculture (USDA) projects fiscal 2023 domestic production to fall roughly 5% in the segment.
Inefficiency
One way for a slower-growing company (like Tyson) to thrive is to have high margins. Unfortunately, in the case of Tyson, gross margins are moving in the wrong direction. Higher competition, industry headwinds, and international currency movements are squeezing the meat producer. TSN’s gross margins are now at their lowest levels since 2016. The picture gets uglier When you compare TSN’s 10.49% gross margin to that of the S&P 500 (48.73).
Image Source: Zacks Investment Research
Lagging Price and Volume Action
Even ahead of fundamentals, the best arbiter of truth in the stock market is the price and volume action – it doesn’t lie. Like Tyson’s fundamental picture, its technical picture is dull. For example, S&P 500 has shot higher by 56.7% over the past five years while Tyson is down 15.7%.
Image Source: Zacks Investment Research
Zoom in a bit more, and the picture doesn’t get much prettier. The stock is clearly in a downtrend and is approaching the underside of the 50-day moving average – a zone where the stock failed the past four visits.
Image Source: Zacks Investment Research
Weak Industry
Outside of the general market and earnings estimates, the single most significant factor impacting the price of a stock is the industry group it is in. The Food–Meat Products group is in the bottom 9% of all industry groups tracked by Zacks. Industry group peers such as Hormel Foods ((HRL - Free Report) ) and Pilgrim’s Pride ((PPC - Free Report) ) also show poor earnings growth and weak technical action.
Bottom Line
Meat producers like Tyson Foods are facing several challenges that could lead to further declines in stock prices. Furthermore, Tyson’s fundamental picture is one of slowing growth and shrinking margins – a lethal combo. Lastly, the poor price and volume action confirms the fundamental picture laid out above.