Tyson Foods Inc (TSN, Financial) experienced a daily gain of 2.77%, a three-month gain of 12.99%, and an Earnings Per Share (EPS) (EPS) of $0.92. With these figures, one might ask: is Tyson Foods significantly undervalued? This article aims to answer this question by providing a detailed valuation analysis of Tyson Foods. Read on for a comprehensive review of the company's financial health, profitability, growth, and more.
Company Overview
Tyson Foods is a protein-focused food producer, selling raw chicken, beef, pork, and prepared foods. Chicken and beef are its two largest segments, each comprising about one-third of U.S. sales. Prepared foods constitute roughly 20% of sales and include brands like Tyson, Jimmy Dean, Hillshire Farm, Ball Park, and Sara Lee. However, most of these are in product categories rife with competition where Tyson does not have a massive market share lead. Tyson sells some products overseas, but the international segment accounts for just 5% of total revenue. The company is an active acquirer, with more recent years' purchases focused on international and food-service markets.
Understanding GF Value
The GF Value represents a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
With a current price of $55.24 per share, Tyson Foods has a market cap of $19.60 billion. According to the GF Value calculation, Tyson Foods stock is believed to be significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Tyson Foods has a cash-to-debt ratio of 0.08, which ranks worse than 81.79% of companies in the Consumer Packaged Goods industry. The overall financial strength of Tyson Foods is 6 out of 10, indicating that the financial strength of Tyson Foods is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Tyson Foods has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $53.30 billion and Earnings Per Share (EPS) of $0.92. Its operating margin of 2.41% is worse than 62.62% of companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks Tyson Foods's profitability as strong.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Tyson Foods is 8.2%, which ranks better than 56.18% of companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is 13.6%, which ranks better than 63.12% of companies in the Consumer Packaged Goods industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Tyson Foods's return on invested capital is 2.41, and its cost of capital is 6.67.
Conclusion
In conclusion, the stock of Tyson Foods (TSN, Financial) is believed to be significantly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 63.12% of companies in the Consumer Packaged Goods industry. To learn more about Tyson Foods stock, you can check out its 30-Year Financials here.
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