Why You Should Hold On To Tyson Foods (TSN) Stock For Now
Zacks Investment Research | Dec 02, 2016 03:11AM ET
A prudent investment decision involves buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
Meat processor Tyson Foods, Inc. (NYSE:TSN) seems to be one such stock that investors need to hold on to if they are looking to reap long-term gains even though the stock is plagued by several headwinds at the moment. However, these concerns are short term and transitory in nature and still keeps space for this Zacks Rank #3 (Hold) company to rebound in the long run.
Further, Tyson’s stock price history reveals that the company hasn’t been a disappointment in a long time. In fact, so far this year, the shares of this meat processor have risen 5.3%, outperforming the Zacks Categorized Food-Meat Products Market, which has showcased a decline of 5.3%. Let’s delve deeper and bring what’s hidden to the surface.
Concerns Remain
Tyson Foods has been witnessing soft results in the Beef, Chicken and Prepared Foods segments. Lower cattle supply and higher fed cattle costs have been responsible for the sluggishness. Moreover, the company decided to reduce its beef production capacity in response to lower cattle supply.
The chicken segment is also facing several transitory headwinds of late. The company was unable to respond to demand fluctuations, which resulted in higher cost to the company. Moreover, higher soybean meal input cost has been denting margins in the sector.
These headwinds have resulted in Tyson Foods’ top and bottom-line failing to meet Zacks Consensus Estimate for the recently reported fourth-quarter fiscal 2016. While earnings missed the consensus mark by 22.6%, sales lagged by 1.6%.
Underlying Growth Drivers
Tyson continuously innovates and adds products to an already rich food lineup. As an increasing number of health-conscious U.S. consumers are focusing on nutritious breakfasts, Tyson considers it a high potential category. Launches like ‘Day Starts’ breakfast sandwiches, Hillshire Farm American Craft line of smoked sausage and Chef Pierre Luxe Layer pies have received good response from consumers.
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Moreover, the addition of Individually Quick Frozen (IQF) products has further augmented Tyson’s 100% antibiotic-free NatureRaised Farms brand which is keeping in view the increased health consciousness among customers and their choice of nutritional food items. Additionally, the company is striving to eliminate the use of human antibiotics from its U.S. broiler chicken flocks by the end of Sep 2017.
The strong fundamentals of the company have resulted in significant upward revision of estimates for the first quarter fiscal 2017. The stock’s long-term earnings per share growth rate is 11% and it carries a VGM Score of “A.”
We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as the rest is a wait-and-watch story.
Other Stock Picks
Some better-ranked stocks in the broader consumer staple sector include Sanderson Farms Inc. (NASDAQ:SAFM) , Hormel Foods Corp. (NYSE:HRL) and Sysco Corp. (NYSE:SYY) .
Sanderson Farms sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of 5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hormel Foods carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 9.6%.
Sysco also carries a Zacks Rank #2 (Buy) and has an expected long-term earnings growth rate of 8.83%.
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