Deep-Value Tyson Foods Breaks Out On Strong Results
Tyson Foods (NYSE:TSN) is being supported by higher pricing across all of its product lines, but there is more to the story than that. While the company is experiencing double-digit price increases, it is also working hard on internal efficiencies that are expected to save the company at least $1 billion within the next two years.
The news has the stock up about 10% and is trading at a new all-time high and we think it will go even higher. Not only is Tyson driving solid bottom-line results for its shareholders, but it is a deep value compared to the remainder of the consumer staples group. Fellow meat specialist Hormel Foods (NYSE:HRL) trades close to 24X its earnings while Tyson trades closer to 12X and they pay very similar dividends.
The company's press release explained:
“Beginning in fiscal 2022, we launched a new productivity program, which is designed to drive a better, faster and more agile organization that is supported by a culture of continuous improvement and faster decision making. We are targeting $1 billion in productivity savings by the end of fiscal 2024 and $300 million to $400 million in fiscal 2022, relative to a fiscal 2021 cost baseline. We are currently on track to achieve our planned productivity savings for fiscal 2022.”
Tyson Foods Had A Meaty Quarter
Tyson Foods had a robust quarter but there is something to be aware of. While the $12.93 billion in revenue is up 23.6% over last year and beat the Marketbeat.com consensus by 625 basis, the gains are mostly due to pricing. Volume is up a mere 0.3% across all channels while pricing is up 19.6%.
The good news is that higher realized prices for both meat and packaged foods helped drive solid margin improvement and left the GAAP earnings up more than double from last year. On an adjusted basis, the $2.87 in reported earnings beat the consensus by $0.94 and the company is guiding the outlook for 2022 higher.
Tyson is now expecting to see revenue come in at the high end of the previous range of $49 to $51 million compared to the $50.39 billion consensus, and we see upside risk in the numbers.
Wall Street Likes Tyson
The analysts have been silent about Tyson since November of 2021 but we think the Q1 results will change that. The current consensus is a weak Buy now, with a consensus that implies the stock is already fairly valued, but the institutional activity belies that sentiment.
Although activity has been slowing from a peak set in the first quarter of 2021, it is still strong and biased in favor of the bulls. Net activity over the past 12 months is worth about $1.15 billion, or 3.6% of the market cap, and brings total ownership up to 66% of the company. This activity is not only supporting prices in the near term, but will help keep them moving up over the long term as well, at least until institutional activity shifts in favor of the bears.
The Technical Outlook: Tyson Breaks Out To New Highs
Shares of Tyson popped about 10% in the wake of the earnings report and may move higher. The candle formed is a doji and a strong one which indicates some indecision in the market.
Assuming the market decides to follow through on today’s pop, we see this stock moving sideways in consolidation in the very near to near-term period with upward movement and new highs expected in the short, mid, and long driven by results and multiple expansion.
