Tyson Foods, Inc. (NYSE:TSN)

CAPS Rating: 4 out of 5

Produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Also produces a wide range of fresh, value-added, frozen and refrigerated food products.

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Member Avatar Jordrok (98.84) Submitted: 3/29/2016 12:01:04 PM : Outperform Start Price: $67.37 TSN Score: -3.90

Mechanical investing.

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Member Avatar notyouagain (60.22) Submitted: 3/6/2016 8:23:00 PM : Outperform Start Price: $64.71 TSN Score: -1.79

I don't feel like writing a long pitch. I used to write many of them, but just haven't been into writing long, analytical pitches for awhile. I'm kind of out of practice.

TSN failed to impress me the last time I looked at it years ago. But things change and evolve, and sometimes it pays to take another look later. This is one of those times. And boy, am I glad I took another look at Tyson. I really have mostly lost interest in writing long, detailed pitches. Sometimes they don't even get recced. My pitch for Hormel got zero recs, and I was right on the money with that one. Hormel, by the way, still has a huge amount of room to run in the long term.

Someone on a comment section following an article was trying to develop a model based purely on numbers (margins, etc.) that indicated whether a company had a competitive advantage because, as you no doubt know, higher margins would indicate the pricing power of an economic moat. I agree...but I also believe that a market-leading company that absolutely dominates its niche also has economies of scale and the financial strength to sometimes run on lower margins to make it harder for would-be competitors to gain a foothold. A quarter or two of lower margins absolutely did NOT indicate a weakening competitive advantage for either Hormel or Scotts Miracle Gro. And if competitors try to crowd into any markets dominated by Tyson brands, I have no doubt that particular Tyson segment will defend its market the same way.

If anyone reads my pitches, you know I believe in looking at the numbers. Numbers tell me 90% of what I want to know. The thing is, don't ignore that other 10%.

I'm going to make a bold prediction. Buying Tyson now is better than buying Hormel in July of 2014...and Hormel has nearly doubled since I made that call. Hormel recently split, and has since almost climbed back up to my beginning start price.

Tyson's brands have incredible dominance in their markets. Incredible. Tyson is the second-largest food production company in the Fortune 500. It markets chicken, beef, and pork to retail grocers, foodservice distributors, and national fast food and full service restaurant chains. Its 54 chicken plants, 13 beef plants, and 6 pork plants fresh beef and pork, frozen and fully cooked chicken, beef and pork products, supermarket deli chicken products, meat toppings for the pizza industry and retail frozen pizza, ground beef and flour tortillas.

Tyson supplies all Yum! Brands chains. If you eat at Taco Bell or KFC you're a Tyson customer. Also, if you eat at McDonald's, Burger King, or Wendy's, you're a Tyson customer. If you buy your meat at Walmart, Kroger's, or IGA you're a Tyson customer.

Ever wonder what became of IBP? IBP was swallowed up by Tyson in 2001. Tyson has also acquired Hudson Foods Company, Garrett Poultry, Washington Creamery, Franz Foods, Prospect Farms, Krispy Kitchens, Wilson Foods, Mexican Original, Heritage Valley, Holly Farms, and many, many more. In 2014 Tyson sold its Brazilian and Mexican poultry businesses for $575 million and used the proceeds to pay down debt from its $7.7billion purchase of Hillshire Brands.

That Hillshire Brands purchase is what led me to take a fresh look at Tyson. Since about 70% of my daily caloric intake comes from Sara Lee Healthy Multigrain 100% whole grain bread, I wondered who owned Sara Lee now.

(I only rarely eat meat. In fact, I only rarely eat anything besides cheap canned red kidney beans, bananas, Sara Lee Healthy Multigrain 100% whole grain bread, an occasional no-sugar-added fudge pop, and a cup of frozen peas once in a while. For a couple years, I ate a lot of chicken nuggets, but recently replaced them with red kidney beans and Sara Lee Healthy Multigrain bread, each of which provide way more calories per penny (but very, very *healthy* calories). So I eat a very low-fat, low-sugar, low glycemic index, high protein, zero cholesterol, ultra-low cost diet that costs me less than $30 a week. I'd rather have my money than spend any more than I have to turning some of it into excrement and fat. Eating only low glycemic index foods or foods with low glycemic loads avoids spiking my blood sugar and giving me hunger pangs later. So I live on around 1800 calories a day for about $30 a week or less...and rarely if ever feel hungry. It's empowering. I've lost about eighty pounds in a couple years, reversed diabetes, and no longer need cholesterol meds. And saved tons and tons of money.)

But I'm certainly happy so many other people love Tyson brands. There's Tyson, Ball Park franks, State Fair, Bonici, Mexican Original, Hillshire Farms, Jimmy Dean Sausage, Chef Pierre, Bosco's, Wright Bacon, and Sara Lee.

Tyson's acquisition of Hillshire Brands stretches its diversification into new areas of dominant brands. Sara Lee Is ubiquitous in that aisle of any grocery store.

NOW let's talk about numbers. TSN closed Friday at $64.96...barely off its 52-week high. Maybe a pullback will offer another shot at a cheaper price. I don't care. 3 or 4 years, and most certainly 5 years from now, it won't matter. So I pulled the trigger on TSN's direct stock purchase plan at Computershare yesterday. I actually hope there's plenty of significant declines in the share price while other members of the herd are preoccupied with shiny objects and chasing after more 'exciting' stocks like Amazon or Google. Because significant price declines will mean reinvested dividends and any additional money I add will buy more shares.

Ok. Let's start with the PE. The Fool lists the PE as 20.4. The 5-year high PE is listed as 18.7 and the 5-year low PE is listed as 7.4.

I pulled the trigger here? You must think I'm crazy. But before you judge me, you'd better take a glance at the last few months' price history. You just might be waiting a very long time for a pullback in share price, and you might not see one until it splits again for the first time since 1997.

The Fool lists a beta of just 0.32, meaning TSN doesn't jump or dive every time the market wobbles.

Price/sales is listed as 0.59 vs. an industry average of 0.85. Later, when we go on to look at some figures at Morningstar, I hope to convince you that is just silly.

Ok. The PE is 20.4. Now go on down to the Price to Free Cash Flow. The Fool lists the Price to Free Cash Flow as 10.4.
PE...20.4, Price to Free Cash Flow...10.4.

I'm a long way from done.

Anyone who's ever read any of my pitches knows I'm a dividend guy. They also might have read in some of my pitches that I think investing in puny little dividends is just asking to be whacked.

TSN's $0.60 annual dividend is puny. At Friday's closing price of $64.96, it represents a dividend yield of just 0.9%.

But here's the thing. The Fool lists the 5-year dividend growth rate as 21.97%, and the payout ratio as 14%. That payout ratio goes by trailing earnings. Going by the 'Key Statistics' page at YahooFinance, the forward payout ratio would only be a little over 10%.

In spite of all the debt they've taken on with recent acquisitions, TSN's total debt/equity ratio listed on the Fool's ratios page is still only 0.69 and with an interest coverage of 8.8, each dollar of interest expense is still covered by $8.80 of earnings.

They've had a 5-year sales growth rate of 6.1% vs. an industry average of MINUS 8.49%....according to the Fool.

Have a look at their last few years of quarterly dividend payouts:

2013
3/15.....$0.05
6/14.....$0.05
9/13.....$0.05
12/13...$0.075

2014
3/14.....$0.075
6/13.....$0.075
9/15.....$0.075
12/15...$0.10

2015
3/13.....$0.10
6/15.....$0.10
9/15.....$0.10
12/15...$0.15

2016
3/15.....$0.15
6/15.....$0.15

See what's happening? This snowball is getting bigger faster. In fact, much, much faster. That last dividend increase was 50%! To see more about what's going on, now we're heading over to Morningstar. Follow me there.

http://www.morningstar.com/stocks/xnys/tsn/quote.html

Starting with the quotepage at Morningstar, we can see a forward PE of 15.4 listed at the top of the page. Scroll down to the middle, where 'key stats' are.

They list a TTM PE of 19.7 against an industry average PE of 15.4. And the price/book is higher than the industry average, as is the price/sales. The 3-year average net income growth is actually below the industry average, so why's it more expensive?

Look at the return on assets and the return on equity. Those are figures for the trailing twelve months. Return on equity for the TTM is 14.3% vs an industry average of 10.6%.

There was one more thing on that Fool ratios page I failed to point out. Go back and look at it. It's under 'growth rates' on the Fool's ratios page for TSN.

TSN had a capital spending 5-year growth rate of 15.46%...against an industry average of 5.62%.

I'm guessing that TSN has been planting some seeds for the future that are just beginning to bear fruit.

Down below 'key stats' are some financials. Take a second to check those out.

2013 revenue was $34.374B.
2015 revenue was $41.373B.
That's a 20.36% growth in revenue.

2013 net income was $778M.
2015 net income was $1.22B.
That's a 56.8% growth in net income.

Shares outstanding increased by more than 12.5%, but earnings per share increased 39.15% anyway.

Stockholders' equity was $6.201B in 2013.
Stockholders' equity was $9.691B in 2015.
Shares outstanding may have increased by a hair over 12.5%, but stockholders' equity increased by 56.28%.

Free cash flow was $756M in 2013.
It dipped some in 2014, but free cash flow was $1.716B in 2015.
That's an increase in free cash flow of 126.98%.

Now go to the Morningstar key ratios page for TSN. You gotta see this.
http://financials.morningstar.com/ratios/r.html?t=TSN&region=USA&culture=en_US

See that? You're looking at 10 years' worth of info. The last several years are particularly interesting. And now that I'm looking at it, I can see why I was so quick to dismiss TSN several years ago. Up until 2013, what dividend grow

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Member Avatar dreamjob (75.04) Submitted: 2/12/2016 6:55:49 AM : Outperform Start Price: $60.11 TSN Score: -2.06

Free cash flow and earnings growth is impressive. Debt is a bit of a concern; however, the price looks good even within a 52 week high. Tyson is a recognizable / strong brand in the food industry. I think it still goes up from here.

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Member Avatar GregSinadinos (63.07) Submitted: 1/12/2016 6:08:03 PM : Outperform Start Price: $53.55 TSN Score: +16.81

Tyson is an indispensable piece of the consumer goods industry. Many companies white-label their products as their own generic brand. A company like this should, theoretically, only continue to spread its roots in the industry.

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Member Avatar Kathy (46.59) Submitted: 9/4/2015 4:02:47 PM : Outperform Start Price: $42.54 TSN Score: +49.43

bought in 2010 for $19.97 up 107%

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Member Avatar StockMarketKid13 (54.87) Submitted: 6/21/2015 10:29:51 PM : Outperform Start Price: $42.96 TSN Score: +55.83

good

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Member Avatar Dividends500 (87.81) Submitted: 3/19/2015 1:18:25 PM : Outperform Start Price: $36.09 TSN Score: +68.29

Dividends500 tracks the 200 strongest dividends in the S&P 500. To qualify as a strong dividend, the company must meet two simple requirements:

- A payout ratio below 50%
- An increasing dividend from the prior year

Because there are more than 200 dividend paying companies in the S&P 500 that meet these requirements, the qualifying companies with the largest dividend yields were chosen.

Dividends500 intends to test this FactSet article, which highlights these strong dividend paying companies and their outperformance versus the S&P 500 as a whole (Page 12).

http://www.factset.com/websitefiles/PDFs/dividend/dividend_12.16.13

If you have questions or see something you think is inaccurate feel free to let me know.

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Member Avatar Sparticus501 (< 20) Submitted: 1/21/2015 3:03:41 PM : Outperform Start Price: $40.07 TSN Score: +62.47

Farmland is at a premium, as are farmers. Long term gain with a low PE.

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Member Avatar 1russianguy (46.23) Submitted: 1/15/2015 10:12:59 AM : Outperform Start Price: $39.36 TSN Score: +64.36

Sabrient

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Member Avatar CellBlock9 (91.26) Submitted: 12/14/2014 8:07:12 AM : Outperform Start Price: $40.51 TSN Score: +60.31

S&P 5 star stock, 40.8

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Member Avatar Pumpstick (97.93) Submitted: 10/21/2014 2:26:08 PM : Underperform Start Price: $38.61 TSN Score: -63.90

No!

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Member Avatar Gilcon (< 20) Submitted: 6/18/2014 6:56:30 PM : Outperform Start Price: $35.41 TSN Score: +80.85

Needless to say the acquisition is expensive, but there are efficiencies to be realized, diversity in markets available and opportunity in front of them. I believe they are at a discount.

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Member Avatar scottcpacma (40.09) Submitted: 3/3/2014 5:51:19 PM : Outperform Start Price: $38.58 TSN Score: +60.13

increase in profits, good for this individual stock

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Member Avatar financialorbit (77.00) Submitted: 8/13/2013 10:56:14 AM : Outperform Start Price: $30.70 TSN Score: +92.11

Improving pricing power in its core protein businesses, a theme accentuated by the proposed Smithfield takeover by the Chinese. Globally there is a rising demand for meat too. Good value still for a changing business.

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Member Avatar dnichol9 (< 20) Submitted: 6/30/2013 12:00:43 PM : Outperform Start Price: $25.22 TSN Score: +133.01

As prices rise for beef and other meats chicken still shows to be the cheaper healthier alternative protein. In the year to come I see it even outperforming the projected 21%

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Member Avatar EllenBrandtPhD (< 20) Submitted: 6/6/2013 9:23:56 AM : Outperform Start Price: $24.16 TSN Score: +144.48

I believe TSN is about to get several analyst upgrades and/or raised targets, so long as the general market keeps chugging along.

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Member Avatar recklessfier (< 20) Submitted: 4/26/2013 3:53:36 AM : Outperform Start Price: $24.29 TSN Score: +140.60

Screener_DBI

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Member Avatar RHoop206 (86.77) Submitted: 9/3/2012 9:26:51 PM : Outperform Start Price: $15.22 TSN Score: +286.16

Buy after dip!

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Member Avatar jessba15 (62.39) Submitted: 8/14/2012 10:21:18 PM : Outperform Start Price: $15.20 TSN Score: +286.31

Chicken parts for biofuel

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Member Avatar RumbachStock (32.01) Submitted: 5/24/2012 9:13:11 PM : Outperform Start Price: $18.48 TSN Score: +200.47

Consistent earnings, strong brand name, still plenty of room for international growth. Throw in some margin improvement, and you could have a Buffetesque investment.

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