Stephens Is Hungry For Tyson Foods

Tyson Foods, Inc. TSN boasts a diversified portfolio of proteins that will help the company navigate through any volatility within any one food group, according to Stephens.

The Analyst

Stephens' Ben Bienvenu initiated coverage of Tyson Foods with an Overweight rating and $78 price target.

The Thesis

The bullish case for Tyson Foods' stock is based on four key factors, Bienvenu said in the initiation note.

• Tyson is the largest chicken processor in the U.S. and unlike most of its rivals, the company is able to offer a "heavy mix" of value-added products. The company also happens to be the largest beef processor in the U.S. which generating much higher operating profits compared to chicken.
• Over the years Tyson's prepared food business has grown notability and contributed stability to overall earnings. Over the past 15 years, the prepared food business has grown from 11 percent of total revenue to 21 percent. The acquisition of Hillshire resulted in lower earnings volatility while the "Core 9 brands" evolved to "critical mass" status.
• Tyson's management deserves credit for not only pursuing the "right types" of acquisitions but over-delivering on synergy targets. The Hillshire acquisition was supposed to initially generate $300 million in synergies by the end of the third year but ultimately realized $675 million in synergies.
• Tyson allocated a "significant amount" of capital towards growing the business through capital expenditures but at the same time, the company returned a lot of cash to shareholders through dividends and buybacks. This puts the company in a position where it needs to manage risk and pursue only opportunistic M&A deals.

Price Action

Tyson Foods traded higher by 2.6 percent at $63.90 per share Tuesday afternoon.

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