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Tyson Foods (NYSE:TSN) posted third quarter profit well below analyst estimates and the stock was taking a six percent haircut in Monday’s trading. The Arkansas-based meat processor was expected to earn 12 cents per share on revenue of $7 billion. The company reported earnings Monday morning before the open that were well below that number, coming in at only three cents per share on $6.8 billion in revenue.

The company earned only $9 million dollars compared to the same quarter last year when earnings were $111 million. Skyrocketing grain costs in the company’s chicken segment were largely to blame for the tough quarter and the company expects this situation to continue for the remainder of the year, despite its belief that the nation’s corn yield will surpass government estimates, thus somewhat reducing pricing pressures on this critical commodity.

TSN shares are beginning to be quite attractive to Ockham, especially after Monday’s sell-off. The company is in a segment (consumer staples) that still remains pricey according to our valuation measures and therefore, we are not as eager to purchase the shares at the current time. However, continued weakness in both the consumer staples segment and TSN would make us much more bullish on the stock.

Tyson CEO Richard L. Bond believes that it will take another quarter before the company is able to overcome the tough current operating environment. However, he expects fiscal 2009 to see a strong rebound. Many customer contracts will be renegotiated next year and those customers are getting very favorable prices that did not anticipate the strong grain inflation seen this year. Tyson will pass these higher costs onto its customers in the new contracts.

TSN’s beef, pork and prepared foods segments offset the $44 million loss in the chicken business, however, these units also suffered from the higher costs of wheat, dairy and cooking ingredients.

Ockham normally looks for undervalued opportunities in oversold markets and/or market segments when recommending a particular stock. As such, Tyson Foods is beginning to get to a price level that we would find appealing. A continued general market sell-off or correction relative to other market segments, which brought the consumer staples segment to a lower level comparatively, would give us the opportunity to add TSN to our “Strong Buy” list.

Source: Tyson Foods Starts to Look Appetizing