Tyson Foods Trends Higher On Institutional Support
Tyson Foods (NYSE: TSN) has been trending higher since hitting its pandemic bottom for a number of reasons that include institutional support. The institutions have been net buyers for all but 2 quarters since that time and have picked up about 4% of the market cap over the past year alone. Their total holdings are over 67% and growing, and their activity continues to support the stock. Price action has been in a consolidation over the past few months but we see that ending soon. The Q2 results came in better than expected proving that both demand and pricing power are present. The number one takeaway for us is that margins are healthy, earnings are healthy, and the dividend can still be expected to grow with this highly undervalued stock.
The analysts are less enthusiastic and rate the stock a firm Hold with a price target of $97.25. That target is only 6.5% above the current price action and ticked lower in the weeks leading up to the report but we think that may change soon. Trading at 10X its earnings and outperforming the consensus this stock is a deep value within a sector we think will outperform over the next few years. Add in the 2.0% dividend yield and a high expectation for double-digit distribution increases and we see the analysts slowly trickling into this name over the next year. The high price target, which is more in line with our view of the stock, is $115 and a good 20% above the price action.
Last time you’ll see this priced at $1.00
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Tyson Foods Has A Great Quarter, Guides Higher
Tyson Foods had a great quarter supported by demand, pricing, and internal efforts to increase efficiency while meeting demand. The company reported $13.12 billion in net revenue for a gain of 16.1% over last year. This is 220 basis points better than expected and driven by a -1.5% decline in volume which was less than expected and a 17.6% increase in average prices. On a segment basis, Pork and Prepared Foods saw mid-single-digit declines in volume offset by gains in all other segments while all segments saw price increases of 10.8% to 23%.
Moving on to the earnings, the company reports wider margins at both the gross and operating levels. The operating margin improved by 220 basis points for the quarter which led to a significant increase in YOY earnings. The GAAP and adjusted earnings both grew more than 70% from last year with the adjusted $2.29 more than $0.40 ahead of the consensus as well. At this pace, the company is well on track to outperform the Insidertrades.com consensus estimate and has raised its guidance as well. Tyson Foods is now looking for revenue in a range of $52 to $54 billion compared to the consensus of $51.76 and we think it could outperform the expectations. Inflation is curbing some demand but the summer season is approaching, travel is expected to be ample if not robust, and the FDA’s outlook on livestock production is supportive of pricing.
The Technical Outlook: Tyson Foods Is Range-Bound
Price action in Tyson Foods stock has been rangebound the last few months and may remain so in the near to mid-term. The post-release action confirms support at the bottom of the range but resistance is still present at the short-term moving average. If that resistance doesn’t evaporate there is a chance for price action to fall below the $88 support target but we don’t see that happening. Longer-term, this stock should resume its upward trend assuming of course the institutional support doesn't dry up or worse, turn bearish. In that scenario, we see the stock moving up to new highs by the end of the year driven by results, dividends, and dividend growth.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Tyson Foods (TSN) | $58.08 | +0.6% | 3.44% | 25.81 | Reduce | $60.67 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
