Tyson Foods, Inc. (TSN) is the world’s second largest exporter of beef, pork and poultry. But the reluctance of people worldwide to go to restaurants amid the pandemic has had an adverse impact on TSN’s exports, causing the stock to decline 13.5% over the past year. However, soaring demand from China has helped the company recover quickly. As a result, the stock has gained 15.2% over the past three months.
According to the U.S. Meat Export Federation (USMEF), U.S. pork exports increased 11% year-over-year to a record three million metric tons in 2020. While beef exports declined slightly in fiscal 2020 owing to a pandemic-driven demand shock, they made a strong comeback in the fourth quarter ending December 31, 2020, up 4.5% year-over-year.
A global rise in the demand for high quality meat has been one of the key drivers of this industry’s stellar performance, with China being the largest importer for pork over the last year. With the restaurant industry rebounding rapidly on mass vaccination drives in major countries, the meat industry is expected to grow significantly this year. USMEF President and CEO Dan Halstrom expects the demand for high quality meat from the retail and home delivery segments to maintain their current levels even post pandemic, boosting the red meat industry.
Here is why I think TSN is significantly undervalued considering its growth potential:
Trading at Discounted Valuation
In terms of non-GAAP forward p/e, TSN is currently trading at 11.89x, 48% lower than the industry average of 22.86x. TSN’s non-GAAP forward PEG ratio of 1.34x is 58.3% lower than the industry average of 3.21x.
The company’s forward price/sales and price/cash flow ratios of 0.57x and 11.17x compare favorably with industry averages of 1.55x and 14.52x, respectively.
Leading Position and High Profitability
TSN is the largest producer of processed meat in the United States, and second largest in the world. The company has generated $43.19 billion in revenues over the past 12 months. Its trailing 12-month EPS is $5.86.
TSN has a trailing 12-month gross profit margin of 13.66%. Its trailing 12-month return of equity and return on assets of 14.49% and 8.94%,respectively,are significantly higher than the respective industry averages.
Analyst Ratings and Price Target Reflect Potential Upside
Currently trading at $69.50, analysts expect TSN to hit $75.56 soon, representing a potential upside of 11.2%. Of 14 Wall Street analysts that rated the stock, two rated it a “Strong Buy,” and seven rated it “Buy.”
Favorable POWR Ratings
TSN has an overall rating of B, which equates to Buy in our POWR Ratings system.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, TSN has a grade of A for Value and B for Sentiment, which is justified given its lower-than-industry valuation multiples and favorable analyst sentiment.
It is currently ranked #23 of 83 stocks in the Food Makers industry. In addition to the grades I have highlighted, you can check additional POWR Ratings for Momentum, Quality, Stability and Growth here.
There are 18 other stocks in the Food Makers industry with an overall rating of B. Click here to see them.
Despite TSN’s robust growth potential, the company is currently trading at a discount to its peers. Analysts expect the stock to gain momentum soon as international trade ratchets back to pre-pandemic levels.
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TSN shares were trading at $69.12 per share on Wednesday afternoon, down $0.38 (-0.55%). Year-to-date, TSN has gained 7.26%, versus a 4.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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