Pivotal Research Initiates Coverage On Tyson Foods At Buy

Timothy Ramey of Pivotal Research Group initiated coverage on Tyson Foods (NYSE: TSN) on Tuesday with a Buy rating and $55 price target.

“In past cycles at this point, we might be arguing a SELL rating on Tyson Foods,” Ramey wrote in a note. “Margins are at historically high levels; the company has just piled on a lot of debt to do a major acquisition and we are benefiting from lower input costs that will, over time have only one way to move – back higher.”

So why the Buy rating and not Sell?

According to Ramey, Tyson's management and leadership culture, led by its CEO Donnie Smith has “never been stronger.” In fact, the analyst ranks Smith within the top five CEOs he has known over 30 years covering the food sector.

Ramey noted that Tyson has never operated as well as it does today and will benefit as consumers continue shifting from carbohydrate-based meals to protein based meals. The analyst noted that Tyson Foods produces around 20 percent of all protein meals serviced in the U.S. and that the company ranks number one in Chicken with a 21 percent market share, number one in Beef with a 24 percent market share and number two in Pork with a 17 percent market share.

The Hillshire acquisition will help Tyson Foods improve the margin mix and accelerate growth, according to Ramey, who added that meaningful cost synergies opportunities will drive margin expansion for the entire company.

Looking forward to the Tyson Foods' Analyst Day on Wednesday, Ramey thinks that it is likely that investor confidence will rise, and along with it the valuation.