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Despite Tyson’s Recalls, Tyson Stock Is Still Tasty

Ian Bezek

Tyson Foods (NYSE:TSN) is having an incredible 2019. TSN stock is already up from $50 late last year to $77 now, giving the owners of Tyson stock a gain of over 50% in just a few months. For a producer of largely commodity meat products, that’s a sizzling move. Surely it must be time to take profits in Tyson stock, right?

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Not so fast. As good as things are going for TSN stock, they could get even better. The company just reported strong earnings, is poised to benefit from a global flu outbreak, and is making smart moves in plant-based protein products. Throw in that Tyson stock still trades at just 12 times Tyson’s estimated forward earnings – even after rallying over 50% – and it’s clear that TSN stock can rise further.

Tyson’s Product Recalls

The U.S. Department of Agriculture recently expanded its product recalls of various Tyson chicken strips products. In March, the USDA recalled a modest 69,000 pounds of Tyson frozen chicken strips, due to product contamination concerns.

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Last week, however, the USDA greatly expanded the recall, moving from 69,000 pounds up to almost 12 million pounds of these frozen chicken products. The USDA suggests that these products may be contaminated with pieces of metal. As a result, consumers should throw away any of the affected products or return them to the grocery store where they were purchased. Here is a list of the products that are on the recall list.

From consumers’ point of view, this is important news. The USDA’s Food Safety and Inspection Service has received six complaints about the impacted Tyson products, including three reports of oral injuries that were caused by these products.  But these incidents shouldn’t affect TSN stock much.

Regrettably, food safety incidents tend to impact meat producers’ products fairly regularly, but these incidents have little lasting impact. on companies For example, there was a major recall of Hormel Foods’ (NYSE:HRL), meat products that were contaminated with metal last year. But the recall had no lasting impact on HRL’s sales, profits, or its share price. Expect any negative  impact from the current Tyson recall to fade quickly. And, as you can see from the continuously advancing price of Tyson stock, so far the market has not been too concerned about this scandal, either.

Tyson Stock and Swine Flu

Aside from the product recalls, just about everything is going right for TSN right now. The company’s recently released earnings were solid. In addition, the African Swine Flu situation is positive for Tyson and TSN  stock. TSN’s CEO said:

“African Swine Fever has the potential to impact the global protein industry on a level that we have never experienced, and it is an event that will underscore the power of the Tyson business model. While Tyson’s diversity across segments provides stability and puts us in a position to capitalize when opportunities arise, all proteins could see a benefit”.

The African Swine Flu has been ravaging China’s pigs in particular. That should create huge demand in China for meat imports. At the moment, though, tariffs are making it more difficult for American meat producers to export to China. The heightening of tariff tensions between the U,S, and China this week will do little to help in the near-term. Once the trade war is resolved, however, Tyson’s profits should surge, boosting Tyson stock even further.

Tyson Goes Beyond Meat

Interestingly, TSN has been pursuing alternatives to traditional meat products for awhile. The recent Beyond Meat (NASDAQ:BYND) IPO highlighted this fact.

Tyson Foods was one of the early investors in Beyond Meat, first putting money into the company in 2016. Tyson doubled up on its position in 2017, taking part in a subsequent funding round for the pea protein-based burger maker. Earlier this year, just prior to Beyond Meat’s IPO, Tyson exited its position in Beyond Meat. It had owned more than 5% of the company, and its stake was worth something close to $80 million based on the valuation of Beyond Meat during its IPO.

By selling its stake just before the IPO, Tyson clearly left a ton of money on the table. Beyond Meat’s IPO priced at $25 per share. Its price is now around $72. That suggests Tyson could have gotten far more for its 5% stake in the company if it had held onto its shares a little longer.

In any case though, TSN made a nice percentage profit on its investment. Additionally, Tyson’s involvement dating back to 2016 shows that it has its finger on the pulse of the market, as it identified a large, new opportunity before others became interested in it.

Why Tyson Exited Beyond Meat

Tyson decided to exit Beyond Meat for a specific reason. It is developing its own meatless protein products, and as a result, relations between it and Beyond Meat have fizzled. Tyson has already proven that it knows the space, and presumably it can be a strong competitor in the sector.

Despite Beyond Meat’s high-flying stock price, it is still losing tons of money and does not have sufficient capital. A gigantic company like TSN is much better positioned to end up dominating this emerging product category. Tyson already has tons of branded products on grocery store shelves across the nation, along with relationships with leading distributors of food to restaurants.

Beyond Meat makes a big deal of each new restaurant partnership it makes. But Tyson is at a whole different level. TSN can launch new products and distribute them nationwide,  based on its existing channels and relationships.

It’s far from certain that meatless proteins are going to become a huge success. At this stage, it could either be a fad or the next big thing; it’s too early to tell. The health benefits of plant-based proteins compared to traditional meat are debatable. And since plant-based meat is much more expensive (at least for now), it’s unclear if Americans will gravitate to these products in large numbers or if they will only remain popular with vegetarians and vegans. Regardless, if these products become mainstream, Tyson has a good shot at becoming a sector leader.

At the time of this writing, Ian Bezek owned HRL stock. You can reach him on Twitter at @irbezek.

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