Amidst the daily market ebbs and flows, Tyson Foods Inc (TSN, Financial) has experienced a daily gain of 1.61% and an 8.64% gain over the past three months. However, the company's Loss Per Share stands at 1.89. These figures prompt investors to question whether Tyson Foods (TSN) is significantly undervalued. To address this, we shall embark on a valuation analysis that could reveal compelling investment opportunities. Read on as we dissect the intrinsic worth of Tyson Foods (TSN) and determine if the current market price truly reflects its value.
Company Introduction
Tyson Foods Inc (TSN, Financial) is a leading protein-focused food producer, known for its array of raw and prepared food products. With its largest segments being chicken and beef, each making up roughly one-third of U.S. sales, Tyson Foods (TSN) also has a substantial presence in the prepared foods sector with brands like Tyson, Jimmy Dean, Hillshire Farm, Ball Park, and Sara Lee. Despite fierce competition and a lack of dominant market share in certain product categories, the company has maintained a steady growth trajectory, bolstered by strategic acquisitions aimed at expanding its international and food-service market presence. When we juxtapose the stock price of Tyson Foods (TSN) with the GF Value—an estimation of fair value—we set the stage for an in-depth analysis of the company's valuation.
Summarize GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and projected future business performance. If Tyson Foods (TSN, Financial)'s share price is well above the GF Value Line, it may indicate overvaluation and potentially lower future returns. Conversely, a price below the GF Value Line suggests undervaluation and the possibility of higher future returns. Currently, with a share price of $53.67, Tyson Foods appears to be significantly undervalued, suggesting that investors could expect a substantial return over the long term, exceeding the company's business growth.
Financial Strength
Investors must consider a company's financial strength to mitigate the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage are essential in evaluating financial robustness. Tyson Foods' cash-to-debt ratio is 0.06, ranking lower than 86.06% of its peers in the Consumer Packaged Goods industry. However, its overall financial strength is rated a fair 6 out of 10.
Profitability and Growth
Consistent profitability is less risky for potential investors, and Tyson Foods has been profitable 9 out of the past 10 years. Despite a Loss Per Share of $1.89 over the past twelve months, the company's operating margin of 0.73% is fair. In terms of growth, Tyson Foods' average annual revenue growth of 8.1% is commendable, though its 3-year average EBITDA growth rate of -37.7% is a concern, ranking lower than 92.82% of the industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to its capital investment. Ideally, ROIC should exceed WACC. For Tyson Foods, the ROIC is 1.14, while the WACC stands at 6.21, indicating room for improvement.
Conclusion
Overall, Tyson Foods (TSN, Financial) is significantly undervalued, with fair financial health and profitability. However, its growth prospects are less impressive compared to industry peers. For a more detailed financial analysis, you can examine Tyson Foods' 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
