The world's second-largest meat processor, Tyson Foods (TSN) has been creating impressive steam on the stock exchange as the stock has been up approximately 45% in the past 12 months. The company reported a robust third quarter in terms of strong topline and bottomline growth. In fact, a good number of investment analysts have upgraded their rating on Tyson Foods after it reported a strong quarter and provided an optimistic future outlook. For example, Credit Suisse upgraded the food production giant from “underperform” to “neutral” with a revised price estimate from $38 to $42. There are numerous points Tyson Foods is relying on, which can take its development to another level including leverage on higher chicken prices in the coming quarters.
In a research report by EMI, it has been pointed out that there will be only a one percent increase in the production of chicken in the next year. As such, this slow pace of chicken production will tighten product supplies and as per the general laws of economics, this will have a direct bearing on the price. Now, Tyson Foods, being the world’s second largest meat processor, will have tailwinds in form of higher prices and sustained demand for chicken meat.
Inorganic growth opportunity
As this article aptly points out, the recent acquisition of Hillshire brands for a hefty price of $7.7 billion, by Tyson Foods, will definitely help the company in extending its customer base via better geographic presence. Hillshire has an extended portfolio of innovative products along with robust presence and the Tyson/Hillshire combo can reap benefits like improvements in operations, purchasing, and distribution.
One of the other interesting theories, I would like to mention at this point is the solid growth of organic foods market in the US as well as other parts of the globe. Several reports have stressed on the growing health-conscious attitude of the US citizens as well the people around the globe and since, meat is one of the areas that has the highest potential, Tyson and Hillshire combo could eye the sustainable meat market. The access to high quality, locally raised meat in the grocery store, particularly value added products like sausage and hot dogs, is low and Tyson could easily make a move, considering the scale it can offer.
Strong financial performance
Tyson is seeing a strong fiscal year so far. Its quarterly revenue enhanced by 11% to $9.63 billion. This topped analysts' estimates. Consensus had been displaying revenue of $9.5 billion. Chicken and pork products were the best sellers for Tyson, and they resulted in a solid change in its earnings. The earnings of the organization developed by 9%, reporting EPS of $0.75 per share, which was more than $0.69 per share from last year's same quarter.
Tyson Foods, having conveyed a praiseworthy performance in the third quarter, is good to go to quicken to new highs. Administration is optimistic about its development prospects. Tyson is focusing on essential development drivers, and is wanting to sell some of its less favoured units such as the Latin American chicken operations. Despite the fact that it is performing well, Tyson thinks that organization can even perform better without it so it plans to sell this operation to JBS.
Besides, Tyson is also focusing on its home market. It is selling off its universal operations and plans to use the cash to pay off the acquisition charges of Jimmy Dean sausage creator Hillshire Brands Co.
Making the business productive
Further, it has affirmed the shutdown of three of its plants. With this, Tyson Foods is going for restructuring its utilities and getting to be more focused about its operational brilliance. Nonetheless, this shutdown of the plants will result in $49 million as hindrance charges, however the organization isn't agonized over this as the shutdown will eventually enhance its operational performance. This will prompt better revenue later on. Additionally, over the long haul, these initiatives are required to drive better sales, as it will permit Tyson to shift its creation units to better capacities.
Also, under its expansion moves, the acquisition of Hillshire is relied upon to help Tyson in extending its region of operation, adding more customers to it. Also, with such a mixture, administration thinks that Tyson will harvest benefits in terms of improvements in operations, purchasing, and distribution. Likewise, administration has also taken a strict decision to keep up a cost-productive structure to enhance its profit margins.
Takeaway
Taking a gander at the financials, Tyson Foods looks impressive and reasonable with a decent trailing P/E of 15.16. Administration is also anticipating that synergies will come its path with the acquisition of Tyson and Hillshire by 2015, which will help the organization develop. Investigating its earnings development for the following five years, an impressive development in Tyson's earnings by a CAGR of 19% is visible. So Tyson Foods is a good investment bet for the long run.
