Stephens Downgrades Tyson To Equal-Weight, Cites Valuation

Analyst Farha Aslam mentioned that the stock is fully valued at present, having appreciated almost 30 percent year-to-date, as compared to the 2 percent appreciation in the S&P 500.

Tyson Foods has delivered robust results during 2015, and the value of the company’s product mix has increased following the Hillshire acquisition. Aslam believes this would help sustain the valuation.

Related Link: Tyson Foods Posts Downbeat Q4 Earnings, But Sales Beat Views

Key Risks Ahead

According to the Stephens' report, “The key risks are that Beef margins have begun to contract in recent weeks and Prepared Foods volumes have been running below our expectations.” Beef prices are expected to remain volatile, with cattle supply continuing to fluctuate month-to-month.

“Poultry is benefiting from Tyson's value added mix and buy versus grow strategy,” Aslam stated, explaining that the company now expects operating margins for the segment to be more than 10 percent in 2016, as compared to the previous guidance of 9.5 percent.

“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 report added.

The company has reduced its normalized EBIT margin range from 2.5–4.5 percent to 1.5–3.0 percent, to reflect the current market fundamentals, imbalance in processing capacity and tight supplies.

Image Credit: By Jocelyn Augustino (This image is from the FEMA Photo Library.) [Public domain], via Wikimedia Commons