The Bottom Fishing Club: Tyson Foods (NYSE:TSN)
If you are looking for a sustainable food business for your portfolio that pays high dividends, which may grow well over time at a better than normal rate from income, the the easiest choice. Tyson’s Foods (NYSE:TSN). The stock price fell -40% from the 2022 peak to March, but is showing signs of a turnaround. The good news for investors is that good prices can be captured during the 2023 hiccup in profit margins resulting from the COVID demand for home cooking options. In fact, Tyson’s current price would indicate a price to look back to 2024, suggesting that margins are set for a return on sales in 12-18 months.
Tyson is one of the US’s largest manufacturers of frozen and chilled foods, with a particular focus on chicken, and can be found at your local grocery store. Popular items are included Tyson fresh and frozen chicken cuts, Hillshire Farm chopped/processed food, Jimmy Dean breakfast sausage, Park Ball Franks/hot dogs, Hara Rei expensive deli food, assistant Sausage, and Quick fix ready to heat and eat foods, just to list a few.
The company has grown steadily over the decades to the point where revenue as of 2015 has grown between $2 and $4 billion annually. To reach its current size, investing in the business through new brand acquisitions and capital expenditures on plant and equipment kept cash flow “neutral.” Moving forward with such great volume, I expect management to continue its renewed focus on returning capital to shareholders (through dividend increases and possible share buybacks in the future ). Based on the company’s reaction to the large free cash flow achieved during the pandemic for the demand for its products, the owners can be given cash to increase the rates to the year 2025.
Bullish Evaluation Report
The first thing you’ll notice when you research Tyson is that its stock price is highly correlated with its gross margin on sales. The main reason for the -40% reduction in its share price is a pivot in margins from excess to below average this year. To a degree, the beef industry goes through changes like any other business. The COVID-related margins of 2020-22 have encouraged new facilities and supplies to emerge. So, we are in the bottom part of the cycle for Tyson. Today’s margins are the lowest since early 2016.
The positive outlook is that the company is very profitable, and a return to adjusted margins in 2024-25 should jump EPS to the $5-6 range. Wall Street forecasters were expecting this trend.
Based on the stock’s fundamental value ratio for tracking earnings, sales, cash flow, and book value, Tyson is currently trading at less than its 10-year average. If you just look at sales and book value, it’s almost a decade low.
When we include debt and take out retained earnings, the enterprise value picture does not change the underlying information. You can see that lower margins and EBITDA are forecast for 2023.
Savings Savings Mode
The ownership stake is likely to intensify as the company’s annual dividend increases and more current profits become available after the stock is sold in April. Today’s 3%+ yield is double the S&P 500 rate (which occupies the largest relative spread), and is easily covered from an earnings rate of 3.8x compared to 2x to 2.5x from the blue sky S&P 500 business.
The best news for Tyson’s owners is that the organization can increase the cost of ownership by 50% to 100%, and still remain in the conservative zone compared to other companies (and profit margins only with some sales growth occurring in 2024). In other words, Tyson could afford a 5% to 6% dividend yield at today’s share price of $62. And it will maintain revenue and generate cash flow to move operations in the direction of growth, creating capital appreciation through shared earnings over time. [Warren Buffett and Berkshire Hathaway may want to kick the tires and dig deeper into this idea, in my opinion.]
Technology Marketing Area
Another reason to consider buying a Tyson position is that the stock market is currently undergoing a transformation from bullish buyers to buyers who are in control.
On the 18-month trading chart below, I’ve noted some important indicators that show a growing buying trend. The Assembly/Distribution Line a Negative Volume Index Below are the readings from October-November (circled in green), just before the last price drop in March. Recent price cuts in December and again in March did not confirm the strength of the buying pressure from August to November.
Next, purchase interest is measured by Based on Balanced Volume have really taken the last 7 weeks. I’ve marked with blue lines the current OBV increase next to the last similar level that was higher in December 2021. From the previous reference point to April 2022, Tyson outperformed the S&P 500. In fact, the stock market has fallen sharply since Russia’s invasion of Ukraine. , at the same time energy/food shortages were feared.
For fishing enthusiasts, Tyson is a blue chip with counterintuitive arguments. A defensive option in the food industry, with a strong cross-product setup for long-term investors. Margins will decline in the near future, but should be healthy in the next 12-18 months. If you want to keep it for a few years, I believe it will be worth your while. Tyson is likely to outperform the U.S. stock market in general because prices remain high in most U.S. stocks, especially when yields decline. of corporate business.
I bet Tyson a Purchase, and a share price range of $75 to $80 by mid-2024. That earnings support a total return of +25% to +35%. Not exactly amazing forward thinking to you, but if the S&P 500 fails to go down over the same period, Tyson might have a useful idea to consider. A better margin view and a 10 year average value setup will give you this benefit. In fact, a higher yield for better-than-expected sales and an above-average valuation could result in a share price above $100 in 2024 (highs of all times). This scenario results in a total return of +65% or higher in 18-24 months.
What are the problems? For starters, Tyson Foods has a trading/performance record in previous recessions. The company’s worst performance occurred between 2007-10, the Great Depression period. Tyson suffered a lot in terms of management and sales restrictions during that time. So, a major recession after 2023 may hold the share price down (although I worry that other stocks in the US could drop faster in price and value). I believe there is only a slight decline in the share of the bear market on Wall Street. I have a discount of up to $50 in the worst case scenario (-20% total return), without any stock market crashes.
All told, I think Tyson will outperform the S&P 500 over the rest of the year, whether dividends go up or down. Buying on the low, with an analyst’s view on the weak zone may be the winning strategy from here. In the end, I’m taking the contrarian side seriously, and predict that now is a good time to buy the stake, especially for weakness below $60 per share.
Thanks for reading. Please consider this article to be the first step in your career path. Consult with a registered and experienced investment advisor before trading.