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Tyson Foods: Big Upside Found In Chicken

Mar. 02, 2018 3:51 PM ETTyson Foods, Inc. (TSN)PPC, SAFM11 Comments
Ronald Salguero profile picture
Ronald Salguero


  • Big upside of ~30% due to market overreaction.
  • Consumption of chicken and protein-based foods in the U.S. and China is strong and increasing.
  • Profitable business due to falling costs.

Buying opportunity found in market sell-off

Sometimes the equities market does not correlate fundamentals of a business to the stock price. When situations like these happen, buying opportunities come up. Tyson Foods (NYSE:NYSE:TSN) represents a buying opportunity now. The market sold off the stock around 8% amid a lawsuit filed last month in federal court in Illinois by U.S. food distributors, against Tyson Foods Inc, Pilgrim's Pride Corp (NASDAQ:PPC), Sanderson Farms Inc (NASDAQ:SAFM) and Perdue Farms on wholesale chicken price manipulation. Tyson's stock price has not bounced back to its last high since the lawsuit filing in late January 2018. Despite the sell-off, Tyson has shown strong fundamentals and intentions on cutting down costs through acquisitions, expected to result in cost synergy benefits of $200 million. According to the database IBISWorld Tyson Foods is a market leader with market share of about 14% in a robust and matured meat industry. Tyson Foods is a great value idea for investors who want to own stock of a stable business with great profits, and a robust dividend backed by strong free cash flow.

Look at exhibit 1 for market reaction among poultry producers:

Exhibit 1: Market sell-off in late January

Source: Chart was retrieved from the Bloomberg terminal.

Tyson Foods was down nearly 4% following the lawsuit on January 31, 2018, eventually selling off 8% year-to-date. There has not been a verdict on the case as of February 2018.

Lawsuits are nothing new to Tyson. We can look back to history where there was another push to prove collusion in prices back in November 2016.

Exhibit 2: Sell-off of 14% due to litigation based on price collusion conspiracy.

Source: Chart was retrieved from The Bloomberg terminal with a time period of October 2016 to February 2017.

When Tyson was sued in 2016, even

This article was written by

Ronald Salguero profile picture
Undergraduate student at California State University, Fullerton. Seeking a career in investments.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (11)

Agree that PPC is a great play. TSN has no foreign operations. PPC has large one in Mexico and Moy Park in Europe. PPC is the leader in Organic chicken, huge demand. TSN is not. PPC is also a leader in antibiotic free chicken.. I also like PPC because they pay no dividend. They take all cash flow to buy other companies that fit, like PPC bought TYSON's MEXICAN operations and Moy Park in Europe and a recent one GNP.....use that EBIDTA to pay down debt pretty fast, then repeat. PPC is more diversified.
Ppc no dividend and increasing debt. Sales are not increasing enough to justify debt level.
Aino profile picture
06 Mar. 2018
TSN is also purchasing chicken from PPC to fill gap in raw materials shortages according to Tom Haynes. But this will probably end in 2019 when the new plant opens in TN.

PPC is either a bad deal or a huge sale today it is dropped below $24 a share!
Aino, please elaborate on this comment.

"TSN is also purchasing chicken from PPC to fill gap in raw materials shortages."
02 Mar. 2018
TSN generated more FCF than PPC. Sure they did. $38 Billion is Revenue TSN vs 10.77 Billion PPC.
On a per Sales dollar basis, PPC generated more FCF.
PPC is the best bet here. Stock is cheaper, earnings leverage is higher, 100 percent poultry exposure, and it's a better managed company.
Stockmaven profile picture
Thing is not a good Bet. Go with SAFM. Better Company.
newcap profile picture
Nice work. I agree, the lawsuit is a none event that has created a buying opportunity.
Specifically, why do you believe the lawsuit against TSN is a non-event?
Amesbury Investments profile picture
Good article and I agree, it’s next on my buy list.
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