It's Not Just About Strong Results For Undervalued Tyson Foods
Tyson Foods (NYSE: TSN) just reported a very strong fiscal third-quarter and one that proves the value of the company. Shares are moving higher in the pre-market action on this news and concrete sign the company is undervalued. What we're talking about is an announcement from Sanderson Farms (NASDAQ: SAFM) it was near to completing a transaction to sell itself for 4.5 billion dollars. At that rate, the company is valued at a 30% premium to recent price action and puts the stock at a 13.25X valuation relative to the consensus earnings estimate. When we apply those metrics to Tyson Foods, we come up with a price target well above $100 or more than 50% upside. And don't forget, the company's fundamentals and business results more than supports a higher valuation for the stock.
Tyson Foods Had A Strong Third Quarter
Tyson Foods had a strong third quarter supported by robust business in both the retail and wholesale channels. The company reports $12.48 in net consolidated revenue for a gain of 24% over last year. The comp versus last year is fairly easy, the company's business shrank 8% last year, but the results are strong nonetheless. The actual results are 830 basis points better than expected and up 14% over the pre-COVID level. The gains in revenue we're supported by both volume increases and price increases across all segments. The pork segment grew the most at 53% but the beef was also strong at 35% followed by the international segment at 21%, prepared foods at 14%, and chicken at 11.6%.
The company is experiencing negative pressure to margins but is more than mitigating those impacts through price increases and internal efforts to control costs. At the operating level, the adjusted margin came in at 10.8% versus the 7.44% predicted by the analyst and drove solid earnings on the bottom line. The company reports $2.05 in GAAP earnings and $2.70 in adjusted earnings which both beat the consensus estimates and grew double-digits over last year.
The GAAP earnings grew by 42% and adjusted earnings by 93% to outpace revenue gains by significantly wider margins. Looking forward, the company is expecting revenue strength to persist into the fiscal fourth quarter and guided the market higher. The company is now expecting revenue to come in the range of $46 billion to $47 billion versus the $45 billion predicted by Wall Street and this is cautious guidance. The YTD results leave a mere $11.74 billion for the company to bring at the low end of the range which assumes a downtick in business we don’t see coming.
Tyson Foods Is A Fortress For Your Dividend Growth Portfolio
Tyson Foods has been an attractive and undervalued dividend growth stock for several years and that story is only getting better. The company just divested itself of a pet food business that brought in $1.2 billion, increased the liquidity position to $3.4 billion, and positions the company well for future Investments and capital returns. Add in the fact the company is paying out less than 28% of its earnings and the 2.5% yield looks as safe as it can be. Simply based on the company's earnings outlook, the low payout ratio, the nine-year history of dividend increases, and the 26% distribution growth rate, we expect to see Tyson increase the dividend by double-digits again this year. This stock yields about 2.5% but that might not last long with the share price has already on the move.
The Technical Outlook: Tyson Foods Is In Reversal
Shares of Tyson Foods hit a high earlier this year and have corrected in the time since. Most recently, the stock has put in a bottom near the $70 level and is now moving higher. Premarket action has the stock up more than 3% and trading above the short-term moving average. That, along with the indicators, confirmed a reversal in the stock that could easily take it up to the $80 level. A break above $80 would be bullish and likely lead the stock up to the pre-COVID highs in the $95 to $100 range. Longer-term, we see this stock moving above $100 before the end of the year.
Tyson Foods is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
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