Stephens Downgrades Tyson Foods, Sees Little Upside Left

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  • Tyson Foods, Inc. TSN shares have climbed 29 percent year-to-date, and have surged in the last one months.
  • Stephens’ Farha Aslam downgraded the rating on the company from Overweight to Equal-Weight, while raising the price target from $50 to $53.
  • The valuation now reflects the risks and rewards in the market, following the stock’s recent performance, Aslam said.

Tyson Foods’ shares have delivered a strong performance in 2015, and the stock is up almost 30 percent YTD, versus a 2 percent gain in the S&P 500. After the recent performance, the company’s shares already reflect the risk/reward in the market, and incremental multiple expansion from the current levels appears to be limited, analyst Farha Aslam said.

“The Company's product mix is more value added post the Hillshire acquisition, so the premium valuation will likely be sustained,” Aslam added.

The company’s value added mix and buy versus grow strategy is boosting the Poultry business. Tyson Foods has raised the guidance for segment operating margin from 9.5 percent to beyond 10 percent.

Pork margins are extremely high due to the ample supply of hogs. The company has projected segment operating margin at 6-8 percent. “Beef is expected to be volatile month to month as the cattle supply remains very uneven,” the analyst wrote.

“Prepared Foods should benefit from lower commodity costs and Hillshire synergies, balanced by increased investments behind brand building and additional price reductions to manage price gaps versus competition,” the Stephens report stated. Tyson Foods expects segment operating margin to come in at the low end of the normalized range of 10-12 percent.

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Posted In: Analyst ColorDowngradesPrice TargetAnalyst RatingsFarha AslamStephens
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