With a daily loss of -2.24% and a 3-month gain of 6.05%, Tyson Foods Inc (NYSE:TSN) presents an interesting case for value investors. The company's Earnings Per Share (EPS) (EPS) stands at 0.92. The question that arises is whether the stock is significantly undervalued. This article aims to provide a comprehensive valuation analysis of Tyson Foods (NYSE:TSN), encouraging readers to delve into the subsequent sections for a more detailed understanding.
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. The company's international segment accounts for just 5% of total revenue. Tyson Foods is an active acquirer, with recent years' purchases focused on international and food-service markets.
The stock price currently stands at $51.86, with a market cap of $18.40 billion. Comparing this with the GF Value, an estimation of fair value, sets the stage for a more profound exploration of the company's value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
According to GuruFocus Value calculation, the stock of Tyson Foods (NYSE:TSN) is estimated to be significantly undervalued. At its current price of $51.86 per share and the market cap of $18.40 billion, Tyson Foods stock is estimated to be significantly undervalued. This suggests that the long-term return of Tyson Foods is likely to be much higher than its business growth.
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's imperative to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Tyson Foods has a cash-to-debt ratio of 0.08, which ranks worse than 81.71% of 1799 companies in the Consumer Packaged Goods industry. Based on this, GuruFocus ranks Tyson Foods's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Tyson Foods has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $53.30 billion and Earnings Per Share (EPS) of $0.92. Its operating margin is 2.41%, which ranks worse than 62.96% of 1844 companies in the Consumer Packaged Goods industry. Overall, the profitability of Tyson Foods is ranked 8 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. 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 55.76% of 1718 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is 13.6%, which ranks better than 62.48% of 1527 companies in the Consumer Packaged Goods industry.
ROIC vs WACC
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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Tyson Foods's ROIC is 2.42 while its WACC came in at 6.89.
Overall, Tyson Foods (NYSE:TSN) stock is estimated to be significantly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 62.48% of 1527 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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This article first appeared on GuruFocus.