Tyson Foods Inc Valuation – August 2016 $TSN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Tyson Foods Inc (TSN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Tyson Foods, Inc. is a food company. The Company is engaged in offering chicken, beef and pork, as well as prepared foods, including bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, tortillas and desserts. The Company offers food products under Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair brands. It operates through four segments: Chicken, Beef, Pork and Prepared Foods. It operates a vertically integrated chicken production process, which consists of breeding stock, contract growers, feed production, processing, further-processing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its subsidiary, Cobb-Vantress, Inc., the Company is engaged in supplying poultry breeding stock across the world. It produces a range of fresh, frozen and refrigerated food products. Its foreign markets include Canada, China, the European Union, Japan, South Korea and Taiwan.

TSN Chart

TSN data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSN – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $27,845,048,112 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.80 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -2156.25% Fail
6. Moderate PEmg Ratio PEmg < 20 24.01 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.01 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.80 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.81 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

TSN value chart August 2016

EPSmg $3.17
MG Growth Estimate 15.00%
MG Value $121.87
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $45.90
MG Value based on 0% Growth $26.91
Market Implied Growth Rate 7.76%
Current Price $76.00
% of Intrinsic Value 62.36%

Tyson Foods, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.28 in 2012 to an estimated $3.17 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.76% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Tyson Foods, Inc. revealed the company was trading above its Graham Number of $52.23. The company pays a dividend of $0.55 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 24.01, which was below the industry average of 30.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.94.

Tyson Foods, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

TSN charts August 2016

Net Current Asset Value (NCAV) -$19.94
Graham Number $52.23
PEmg 24.01
Current Ratio 1.80
PB Ratio 3.01
Current Dividend $0.55
Dividend Yield 0.72%
Number of Consecutive Years of Dividend Growth 4


Useful Links:

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $4,881,000,000
Total Current Liabilities $2,713,000,000
Long-Term Debt $6,099,000,000
Total Assets $22,410,000,000
Intangible Assets $11,773,000,000
Total Liabilities $12,619,000,000
Shares Outstanding (Diluted Average) 388,000,000

Earnings Per Share History

Next Fiscal Year Estimate $4.55
Sep2015 $2.95
Sep2014 $2.37
Sep2013 $2.12
Sep2012 $1.58
Sep2011 $1.97
Sep2010 $2.06
Sep2009 -$1.47
Sep2008 $0.24
Sep2007 $0.75
Sep2006 -$0.58
Sep2005 $1.04
Sep2004 $1.13
Sep2003 $0.96
Sep2002 $1.08
Sep2001 $0.40
Sep2000 $0.67
Sep1999 $1.00
Sep1998 $0.11
Sep1997 $0.85
Sep1996 $0.40

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.17
Sep2015 $2.38
Sep2014 $2.07
Sep2013 $1.70
Sep2012 $1.28
Sep2011 $0.99
Sep2010 $0.40
Sep2009 -$0.28
Sep2008 $0.38
Sep2007 $0.52
Sep2006 $0.51
Sep2005 $1.01
Sep2004 $0.95
Sep2003 $0.84
Sep2002 $0.74
Sep2001 $0.58
Sep2000 $0.65

Recommended Reading:

Other ModernGraham posts about the company

Tyson Foods Analysis – July 2015 Update $TSN
5 Undervalued Companies with a Low Beta – June 2015
The Best Companies of the Food Processing Industry – June 2015
5 Undervalued Companies to Research with a Low Beta – May 2015
27 Companies in the Spotlight This Week – 4/4/15

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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