How Financially Strong Is Tyson Foods, Inc. (NYSE:TSN)?
Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as Tyson Foods, Inc. (NYSE:TSN) a safer option. Market participants who are conscious of risk tend to search for large firms, attracted by the prospect of varied revenue sources and strong returns on capital. But, the key to their continued success lies in its financial health. I will provide an overview of Tyson Foods’s financial liquidity and leverage to give you an idea of Tyson Foods’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this information is centred entirely on financial health and is a high-level overview, so I encourage you to look further into TSN here.
See our latest analysis for Tyson Foods
How much cash does TSN generate through its operations?
Over the past year, TSN has maintained its debt levels at around US$9.9b which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$271m , ready to deploy into the business. Moreover, TSN has generated cash from operations of US$3.0b during the same period of time, leading to an operating cash to total debt ratio of 30%, meaning that TSN’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TSN’s case, it is able to generate 0.3x cash from its debt capital.
Can TSN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$5.0b, it seems that the business has been able to meet these commitments with a current assets level of US$5.7b, leading to a 1.13x current account ratio. Usually, for Food companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does TSN face the risk of succumbing to its debt-load?
TSN is a relatively highly levered company with a debt-to-equity of 77%. This isn’t uncommon for large companies because interest payments on debt are tax deductible, meaning debt can be a cheaper source of capital than equity. Since large-caps are seen as safer than their smaller constituents, they tend to enjoy lower cost of capital. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. Preferably, earnings before interest and tax (EBIT) should be at least three times as large as net interest. In TSN’s case, the ratio of 9.37x suggests that interest is appropriately covered. It is considered a responsible and reassuring practice to maintain high interest coverage, which makes TSN and other large-cap investments thought to be safe.
Next Steps:
Although TSN’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around TSN’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for TSN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Tyson Foods to get a better picture of the large-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for TSN’s future growth? Take a look at our free research report of analyst consensus for TSN’s outlook.
Valuation: What is TSN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TSN is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
