Legal Issues On Chicken Pricing Pluck Buy Rating Away From Tyson Foods

Analysts at Argus downgraded Tyson Foods, Inc. TSN to Hold from Buy with no assigned price target.

The analysts, led by John Staszak, noted the downgrade was justified despite the company's strong fiscal first quarter results. In fact, the downgrade is directly a result of an ongoing Securities and Exchange Commission investigation involving Tyson and other poultry producers for alleged manipulation of chicken prices.

Specifically, Tyson received a subpoena from the SEC in late January that the company and some of its peers allegedly conspired to manipulate chicken prices. The subpoena came after U.S. poultry buyers filed a class-action suit, which alleges Tyson and its peers made use of manufacturing efficiency data to restrict supply and keep the prices of chicken higher than it should be.

Analyst Take

Staszak stated Tyson could argue chicken production has risen almost every year for the past 15 years. In addition, more than a quarter of all U.S. chicken producers filed for bankruptcy during or after the 2008/2009 recession.

Regardless of validity of the suit, the analyst believes the SEC investigation will likely "weigh on the shares going forward."

Staszak also cited a few other factors for his downgrade, including: 1) the potential for decelerating earnings, 2) a bird flu outbreak at poultry farms in Tennessee and Alabama, and 3) the company's new CEO Tom Hayes who will be more cautious about acquisitions and business expansions.

The analyst stated he would consider upgrading Tyson's stock back to a Buy rating if it's able to resolve the ongoing legal issues and maintain a track record of reporting strong earnings.

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