UPDATE: BMO Capital Markets Reiterates Outperform Rating, Raises PT on Tyson Foods

In a report published Monday, BMO Capital Markets reiterated its Outperform rating on Tyson Foods TSN, and slightly raised its price target from $27.00 to $28.00. BMO Capital Markets noted, “For the first time, we have selected a protein company as our top pick because we believe TSN is a developing investment in which its earnings power appears severely underestimated reflecting 1) material internal improvements, 2) an ability to consistently outperform industry margins across proteins, 3) improving beef/pork fundamentals, and 4) international expansion. We gain confidence that there is earnings upside in FY2013 and FY2014. First, TSN delivered EPS of $1.97 over the last four quarters without beef and chicken margins in the normalized range. Further, over the last four quarters, TSN did not fully benefit from a reduction of its annualized interest expense ($0.08 contribution to earnings) and/or ongoing share repurchases (i.e., 27.3 million shares contributes $0.15 to earnings). Second, TSN appears poised to generate normalized margins across at least three if not all four of its segments (which implies EPS of nearly $3.00) by F2014 for the first time in recent history. TSN expects to generate chicken margins in the normalized range by F2H13 regardless of industry production and assuming high feed costs, while we expect the closure of Cargill's plant, the return of Japanese beef exports, and TSN's ongoing outperformance (record outperformance during F1Q13) to create normalized margin in beef by early F2014.” Tyson Foods closed on Friday at $22.80.