Food Processing Stocks

Tyson Foods Inc Valuation – June 2018 $TSN

Company Profile (excerpt from Reuters): Tyson Foods, Inc., incorporated on January 31, 1986, is a food company, which is engaged in offering chicken, beef and pork, as well as prepared foods. The Company offers food products under Tyson, Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair brands. The Company 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, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its subsidiary, Cobb-Vantress, Inc. (Cobb), the Company is engaged in supplying poultry breeding stock across the world. It produces a range of fresh, frozen and refrigerated food products.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSN – June 2018

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 $25,711,019,537 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.56 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 291.15% Pass
6. Moderate PEmg Ratio PEmg < 20 12.65 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.13 Pass
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 1.56 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.12 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

EPSmg $5.52
MG Growth Estimate 15.00%
MG Value $212.57
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $80.06
MG Value based on 0% Growth $46.93
Market Implied Growth Rate 2.07%
Current Price $69.83
% of Intrinsic Value 32.85%

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 over the last ten years. 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 $2.13 in 2014 to an estimated $5.52 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.07% 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 below its Graham Number of $73.4. The company pays a dividend of $0.9 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 12.65, which was below the industry average of 24.35, 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 $-26.88.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$26.88
Graham Number $73.40
PEmg 12.65
Current Ratio 1.56
PB Ratio 2.13
Current Dividend $0.90
Dividend Yield 1.29%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $5,990,000,000
Total Current Liabilities $3,838,000,000
Long-Term Debt $8,872,000,000
Total Assets $28,091,000,000
Intangible Assets $15,635,000,000
Total Liabilities $15,935,000,000
Shares Outstanding (Diluted Average) 370,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.36
Sep2017 $4.79
Sep2016 $4.53
Sep2015 $2.95
Sep2014 $2.37
Sep2013 $1.84
Sep2012 $1.58
Sep2011 $1.97
Sep2010 $4.04
Sep2009 -$1.49
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.52
Sep2017 $3.83
Sep2016 $3.12
Sep2015 $2.33
Sep2014 $2.13
Sep2013 $1.87
Sep2012 $1.68
Sep2011 $1.52
Sep2010 $1.06
Sep2009 -$0.29
Sep2008 $0.38
Sep2007 $0.52
Sep2006 $0.51
Sep2005 $1.01
Sep2004 $0.95
Sep2003 $0.84
Sep2002 $0.74

Recommended Reading:

Other ModernGraham posts about the company

10 Best Stocks for Value Investors This Week – 7/22/17
5 Undervalued Companies for Value Investors with a Low Beta – July 2017
Tyson Foods Inc Valuation – July 2017 $TSN
5 Undervalued Companies for Value Investors with a Low Beta – February 2017
5 Undervalued Companies for Value Investors with a Low Beta – January 2017

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Disclaimer:

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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