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Tyson Farm Bird Flu Found Less Menacing than Chinese Variant

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The U.S. Department of Agriculture (USDA) confirmed that the bird flu virus detected at one of Tyson Foods Inc.’s (TSN - Free Report) farm poses lesser threat to humans in comparison with the virus that was responsible for the deaths of 112 people in China.

Further, the U.S authorities stated that although the virus shares the same name as its Chinese counterpart – H7N9, it is genetically different from it.

Outbreaks of bird flu have been reported in poultry farms and wild flocks across Europe, Africa and Asia in the past six months. As per disease experts, although the virus involved poses low risks to human health, the simultaneous presence of it in so many parts of the world, has aggravated the risk of viruses mixing and mutating.

In the first week of Mar 2017, the U.S authorities detected the first case of avian flu in a Tennessee farm, following which thousands of chickens were eliminated at the particular site and 30 other farms within a six-mile radius were quarantined. Known as Highly-pathogenic H7 avian influenza, or HPAI, the USDA’s Animal and Plant Health Inspection Service reported 73,500 birds have been infected by the virus.

Bird flu is highly contagious in nature and infects the entire flock very quickly. The bird flu spreads from birds to humans through the air, or when people come in physical contact with an infected bird or surface.

Asian countries like South Korea, Japan, Taiwan and Hong Kong have limited their imports of U.S poultry after the first case of bird flu was detected.  In fact, the shares have fallen almost 2.6% to $61.92 as of Mar 8, 2017 since the news of bird flu broke out on Mar 5, 2017.

Further, the company’s shares have declined 16.1% in the past six months, which is wider than the Zacks categorized Food-Meat Products industry which has witnessed a slump of 10% in the same time frame.

Tyson Foods has a significant presence in the international market, especially in Canada, Central America, China, the European Union, Japan, Mexico, Middle East, South Korea, Russia, Taiwan and Vietnam.

Our Take

The avian flu outbreak could prove detrimental to Tyson which largely depends on the chicken segment for revenue generation. Rising number of such incidents might induce the U.S consumers to reduce the consumption of meat. However, such headwinds are mostly transitory in nature and we believe Tyson can overcome them with the help of its strong fundamentals.

Tyson has a solid earnings trend as evident from earnings beat in the trailing four quarters with an average earnings surprise of 6.8%. Further, the company is focusing on meat substitutes and is set to invest in companies that develop the same, in a bid to adapt and cater to the growing demand. Notably, in 2016 Tyson bought 5% stake in a plant-based protein producer, Beyond Meat. Management has marked this takeover as 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.

Zacks Rank & Other Stocks to Consider

Tyson currently carries a Zacks Rank #2 (Buy).

Other favorably placed food stocks in the industry include Lamb Weston Holdings Inc. (LW - Free Report) , ConAgra Foods, Inc. (CAG - Free Report) and Ingredion, Inc. (INGR - Free Report) .

Lamb Weston has long-term earnings growth rate of 3.24% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ConAgra Foods and Ingredion, both carrying a Zacks Rank #2, have growth rates of 8.00% and 11.00%, respectively.

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