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  • Home
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  • Tyson Foods Stock: 18.80% Yield Potential with More Production and Higher Prices
Max Manturov

Max Manturov

Head of investment research regulated by CySec 19.05.2021

Tyson Foods Stock: 18.80% Yield Potential with More Production and Higher Prices

Company Name: Tyson Foods, Inc.
Ticker: TSN.US
Entry Price: $79.90
Target Price: $95
Projected Yield: 18.80%
Projected Dividend Yield: 2.20%
Time Line: 3 to 6 months
Risk: High
Position Size: 2%

About Tyson Foods

Tyson Foods, Inc. is a multinational company based on the US that works in the food industry; in particular, it is the world's second largest beef, pork, and poultry processor, being only behind JBS S.A.

Tyson Foods has over 20% of the US meat market; with its subsidiaries, it owns such brands as Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright Brand Foods, Aidells, and State Fair.

What's the Idea?

The idea is to make money on a stock that may rise with the company's products being more in demand, the successful sale of the secondary brands, and more production.

Buy Tyson Foods, Inc. Shares >>

Why Trade Tyson Foods?

Reason 1: Increasing Inflation

With the market being stimulated and pumped wit liquidity, most economic sectors started recovering, while the unemployment rate got stabilized, and the stock markets hit new record highs. Together with this, the inflation increased, too. On May 12, the US inflation report came out, which said the prices had gone up by 4.20% YoY in April, compared to 2.60% YoY in March. Meanwhile, the MoM figures came at 0.80% against 0.60%, respectively. Overall, this is a record high since 2008, the Fed target being just 2%.

The current situation may be beneficial for agricultural and food processing companies, as the rising prices for raw products will be paid by the consumers, who will still maintain a high demand for the essential goods. As a meat processor, Tyson Foods is of course among such companies.

Reason 2: More Production

Tyler Foods is going to expand its production and business in general, which may also boost its value. As such, the company is planning to open new poultry processing facilities in China, Thailand, and the Netherlands, with an overall capacity of around 100,000 tons. This may help Tyler Foods maintain an even better position in the meat market. The new facilities are expected to produce ready to market poultry.

Yet, the geographic expansion is only a part of the overall strategy, which also includes the increase of the existing production in Asia, test soy meat production, etc. With soy meat market having a very good potential, this may also boost Tyler Foods' value. The company well understands that this sector is not to be ignored, and already launched new product lines, including Raised & Rooted. The soy meat by Tyson Foods is already being sold in 5,000 retail stores in the US.

The overall successful strategy may have a great midterm impact on the company's value and stock price.

Reason 3: Sales of Pet Food Brands

Tyson Foods sold Nudges, Top Chews, and True Chews pet food brands to General Mills, Inc. at $1.20B, in cash. This is positive news, as the company got rid of non-core assets and received more liquid funds to invest into its core business.

Reason 4: Positive Financial Performance

In May, Tyson Foods released its Q2 financial report, which exceeded expectations. As such, the earnings reached $11.30B, having increased by 3.80% compared to Q2 2020, while the operating margin was at 6.30% against 4.70%, YoY, and the profit margin, at 4.20% vs 3.50%. Meanwhile, the EPS rose from $0.80 to $1.34.

With a stable financial position, Tyson Foods has $11.30B of debt against $2.40B in liquid cash. The Net Debt/EBITDA and Interest Coverage are at 2.00x and 6.60x, respectively, which means the debt is just moderate. The operating cash flow is stable, too, and amounted to $1.35B in the first months of 2021, meaning there are no liquidity issues. Finally, the dividend yield is 2.21%, per annum.

During the latest meeting, Tyson Foods management raised the earnings expectations from $42B-$44B to $44B-$46B, a piece of quite positive news as well.

As for the ratios, they are lower than the industry average, namely:

  • P/S: 0.68x
  • P/E: 12.38x

The industry average figures are currently at 3.09x and 15.74x, respectively.

In May, various investment institutions and banks raised their target price outlook for Tyson Foods as follows:

  • Barclays: $89
  • Credit Suisse Group: $75
  • BMO Capital Markets: $84
  • Stephens: $90

How to Use the Idea

  1. Buy Tyson Foods stock at $79.90.
  2. Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use the recommendations by our analysts.
  3. Sell the stock when the price reaches $95.

How to Buy Tyson Foods, Inc.?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy shares in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type TSN.US (Tyson Foods, Inc. ticker in the NASDAQ) in the search box, and select Tyson Foods, Inc. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type TSN.US (Tyson Foods, Inc. ticker in the NASDAQ) and select Tyson Foods, Inc. in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.

Buy Tyson Foods, Inc. Shares >>

*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.

  • Sources of information

  • Recommendation evaluation methodology in accordance with Terms and Conditions of Market Research Use
    Freedom Finance analysts perform a three-stage analysis. They select a promising industry based on the latest news, statistics and industry-specific metrics. They assess the supply and demand situation and its future development dynamics. Industry’s investment attractiveness is mostly affected by the forecasted market growth rates; total addressable market, player concentration level and likeliness of a monopoly formation, as well as the level of regulation by various entities or associations.

    The assessment is followed by the comparative analysis based on the selected sample. The sample comprises companies with a market capitalization of over USD 1 billion, but there is space for exceptions (when the suitable level of liquidity for company’s securities is available on the stock exchange). The selected companies (peers) are being compared against each other based on multipliers (EV/S, EV/EBITDA, PE, P/FCF, P/B), revenue growth rates, marginality and profitability (operating income margin, net income margin, ROE, ROA), and business performance.

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    The expected timing of the idea implementation is set depending on the current market situation, volatility level and available forecasting horizon for industry and company development. The forecasting period is normally set between 3 and 12 months.