Do you feel like chicken tonight?
Key Stats for Tyson Foods
| Ticker | TSN |
|---|---|
| Sector | Animal Slaughtering & Processing |
| Latest price | $58.42 |
| Value | $20,926M |
| Daily vol | $175M |
| Date | 24 May 2017 |
| Useful Links | Yahoo Finance, SEC Edgar, tysonfoods.com |
1. Slaughtering?
Wow, that's a sector name!
Tyson is a food company, which is engaged in offering chicken, beef and pork, as well as prepared foods. brands include: Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair brands.
Its products are marketed and sold by its sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores and military commissaries, among others. And you won't be surprised that their biggest client is Wal-mart representing 18% of sales. No one else is more than 10%.
Let's look at the different segments:
| 2016 | Sales | Operating Profit | Margin |
|---|---|---|---|
| Chicken | $10.9bn | $1.3bn | 12% |
| Beef | $14.5bn | $0.3bn | 2% |
| Pork | $4.9bn | $0.5bn | 11% |
| Prepared Foods | $7.3bn | $0.7bn | 10% |
What's the beef?
It's remarkable how low the margin is there, and that's after losses in 2015. :( I don't see the light for it.
But overall?
After a shocker in 2015, the business recovered nicely in 2016. Earning coming through, even though sales aren't, with declining beef prices cutting the top line, though they seem to be able to hedge the price.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| Revenue | $36.8bn | $41.4bn | $37.6bn | $34.4bn | $33.1bn |
| EPS | $4.53 | $2.95 | $2.37 | $2.12 | $1.58 |
| DPS | $0.65 | $0.43 | $0.33 | $0.31 | $0.16 |
Note: the huge jump in sales from 2014 and 2015 comes from an acquisition halfway thro' 2014. With that in mind, there is debt. $6bn of debt versus the market cap of $21bn, but large as that sounds, it's under 2x profit, so should be manageable!
Friendly to shareholders?
Well they do pay a divie. But there are 2 classes of shares, and don't be shocked the Tyson family own pretty much all the B shares with over 70% of the votes. Though as a fop to us mortals we get a higher dividend that the family.
They ain't shy about buying back stock either, spending $650m last year. Retiring 9m of the 350m shares.
2. How do they compare?
It's hard to find a good peer list, so let's look at "food businesses". Tyson doesn't look good on margin, sadly. I assume this reflects the product mix! And that much of what they buy are "agricultural commodities".
Though on a returns perspective, it's not that ugly, and clearly better than some peers.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Tyson Foods, Inc. | $36,824M | 10% | 18% |
| Kraft Heinz Co | $26,281M | 32% | 6% |
| Mondelez International Inc | $25,882M | 21% | 6% |
| General Mills, Inc. | $15,741M | 21% | 36% |
| Danone SA (ADR) | $24,538M | 17% | 13% |
| Kellogg Company | $12,873M | 20% | 39% |
| Hershey Co | $7,491M | 22% | 74% |
| Hormel Foods Corp | $9,511M | 15% | 20% |
| Conagra Brands Inc | $9,565M | 19% | 11% |
| Pilgrim's Pride Corporation | $7,989M | 11% | 36% |
| Sanderson Farms, Inc. | $2,899M | 14% | 18% |
Now the low margin filters through to the valuation. Wow, is Tyson the class dummy?
Or is it Pilgrim's Pride and Sandersons that are the "real peers"? Is so, then 12x isn't a surprise.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| TSN | $20,926M | 12x | 3% | 2% | 12% |
| KHC.O | $111,864M | 25x | 16% | 3% | 7% |
| MDLZ.O | $69,871M | 22x | 10% | 2% | 5% |
| GIS | $32,661M | 19x | 6% | 3% | 10% |
| DANOY.PK | $49,266M | 19x | 8% | 3% | 6% |
| K | $25,083M | 18x | 6% | 3% | 8% |
| HSY | $24,075M | 24x | 8% | 2% | 5% |
| HRL | $18,623M | 21x | 13% | 2% | 7% |
| CAG | $16,331M | 22x | 13% | 2% | 6% |
| PPC.O | $5,831M | 11x | N/A | 1% | 10% |
| SAFM.O | $2,660M | 13x | N/A | 1% | 12% |
3. What's Wall Street thinks?
So maybe this is a value play? Wall Street says Buy and thinks there's a 17% upside, all the way to $68.
And the stocks traded between 11 and 17 times earnings over the last 2 years. So clearly it's out of love for now. And maybe that's fair, the've beaten earnings 5 of the last 8 quarters and missed 3 times. So hardly a perfect track record.
But at least at the last earnings report the re-affirmed guidance and said:
With continued robust exports, strong U.S. demand from consumers, increased cattle supplies, we're expecting Beef segment's operating margins to come in around 5% for fiscal 2017 and we believe the operating environment for 2018 will be just as strong. We intend to capitalize on the favorable market conditions and invest the considerable cash generated to fund the growth of our value-added Chicken and Prepared Foods businesses.
Which net net makes a mockery of Wall Street's 3% long-term growth.
So the beef is good, for once, maybe twice :)
4. Value?
With all the love with Mt Buffett's Kraft, is this part of the world, being ignored? Perhaps. I'm a carnivore. So Tyson's tempting.
What's your meat?
View the archive of Stock a Day posts at r/stockaday.
Disclosure:
I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare is a Chartered Financial Analyst.
Submitted May 24, 2017 at 06:10PM by shane_stockflare http://ift.tt/2qQUkgw
