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Tyson Reaches 52-Week High

Zacks Equity Research

Shares of meat processor Tyson Foods Inc (TSN) reached a new 52-week high of $26.74 on Jul 8, following its acquisition of California-based Circle Foods LLC last month. The share price of the stock has been on the rise and gained 7.0% since the acquisition on Jun 3. In fact, this is the third time Tyson has attained a new 52-week high post-acquisition, with previous highs of $26.05 on Jul 1 and $25.92 on Jun 18.

Shares of this Zacks Rank #2 (Buy) stock closed at $26.57 on Jul 8, recording a healthy return of 33.5% on a year-to-date basis. The company’s long-term estimated earnings growth rate is 8.5%. Average volume of shares traded over the last three months came in at approximately 3,180K.

Acquisition of Circle Foods

Tyson acquired Circle Foods from Montreal-based private equity firm Claridge Inc. to strengthen its presence in the Mexican food category. Circle Foods owns popular brands like Nuevo Grille and Tortillaland handheld Mexican products, Tortillaland uncooked tortillas and ROTILAND Indian flat breads. It also produces private brands for several customers.

Mexican food is becoming increasingly popular in the U.S. processed food industry. The acquisition will expand Tyson’s food offerings with popular brands of Circle Foods.

The acquisition also includes Circle Foods’ state-of-the-art facility in San Diego, which is known for its food safety management system. The plant produces burritos, enchiladas, chimichangas, tacos, quesadillas and tamales, as well as tortillas and Indian flat breads. Prior to Circle Foods, Tyson acquired the Mexican snacks and tortilla producer, Don Julio Foods of Clearfield, Utah in Apr 2013 to add Mexican cuisine to its portfolio.

Further, Tyson has bright prospects for 2013 with its constant focus on innovation. New product launches in 2013 are expected to drive Tyson’s profitability. In addition, the expectation of reduced corn prices in 2013 will prove to be a boon for this meat producer as corn serves as the main feed for chicken.

Tyson thus expects to achieve top-line sales growth of 3% to 4% every year. Value added sales are expected to grow within 6% to 8%, while international sales are expected to increase 12% to 16% during fiscal 2013. The company also aims to maintain bottom-line growth rate of 10% in the long term.

Other Stocks to Consider

Other meat producers in the industry that are worth considering include Sanderson Farms, Inc. (SAFM) and Pilgrim’s Pride Corp. (PPC). Both the companies hold a Zacks Rank #1 (Strong Buy). Another company in the consumer staples sector that holds a Zacks Rank #1 is Flower Foods Inc. (FLO).

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