Tyson Foods Inc (TSN, Financial) has seen a daily gain of 1.28% and a 3-month gain of 3.15%, with an Earnings Per Share (EPS) (EPS) of 0.92. Despite these positive signs, the question remains: is the stock significantly undervalued? This article aims to answer this question through a thorough valuation analysis. We invite you to continue reading for an in-depth exploration of Tyson Foods' intrinsic value.
Tyson Foods Inc (TSN, Financial) is a protein-focused food producer, selling raw chicken, beef, pork, and prepared foods. Chicken and beef are its two largest segments, each comprising about one-third of U.S. sales. Prepared foods constitute roughly 20% of sales and include brands like Tyson, Jimmy Dean, Hillshire Farm, Ball Park, and Sara Lee. However, most of these are in product categories rife with competition where Tyson does not have a massive market share lead. Tyson sells some products overseas, but the international segment accounts for just 5% of total revenue. The company is an active acquirer, with more recent years' purchases focused on international and food-service markets.
Understanding GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
Tyson Foods (TSN, Financial) stock is estimated to be significantly undervalued based on the GuruFocus Value calculation. At its current price of $51.27 per share, Tyson Foods has a market cap of $18.20 billion, suggesting that the stock is significantly undervalued. As Tyson Foods is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Evaluating Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is essential to carefully review a company's financial strength before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding a company's financial strength. Tyson Foods has a cash-to-debt ratio of 0.08, which is worse than 81.67% of the companies in the Consumer Packaged Goods industry. GuruFocus ranks the overall financial strength of Tyson Foods at 6 out of 10, indicating that Tyson Foods' financial strength is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Tyson Foods has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $53.30 billion and Earnings Per Share (EPS) of $0.92. Its operating margin is 2.41%, which ranks worse than 63.06% of the companies in the Consumer Packaged Goods industry. Overall, the profitability of Tyson Foods is ranked 8 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Tyson Foods is 8.2%, which ranks better than 55.71% of the companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth is 13.6%, which ranks better than 62.4% of the companies in the Consumer Packaged Goods industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Tyson Foods's ROIC is 2.42 while its WACC came in at 6.86.
In conclusion, the stock of Tyson Foods (TSN, Financial) is estimated to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 62.4% of the companies in the Consumer Packaged Goods industry. To learn more about Tyson Foods stock, you can check out its 30-Year Financials here.
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