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Why Should Tyson Foods (TSN) be Part of Your Portfolio Now

Tyson Foods, Inc. TSN has done exceedingly well and emerged as a strong contender to be an investment choice. This is quite evident from the stock’s surge of 30.5%, compared with the industry’s growth of 19.8%. We believe there is still momentum left in this Zacks Rank #2 (Buy) stock, which is reflected in its VGM Score of A. Let’s delve deeper. 

Protein Packed Brands — A Bright Spot

Tyson Foods actively responds to consumers increasing preference for protein-packed meat and chicken products. Notably, sales volume in the chicken segment inched up 1.6% and 4.1% during the third and fourth quarters of fiscal 2017, respectively. Encouraged by such growth, the company has undertaken several efforts to expand poultry production capacity, especially in Tennessee. Along with the chicken segment, the company’s beef unit grew 0.4% and 3.3% in the past two quarters. Robust domestic demand for beef products, improved availability of cattle supply and higher exports have been the primary catalysts in this segment.

Further, Tyson Foods has been focusing on acquisitions to strengthen protein-packed portfolio. In this regard, the company’s AdvancePierre buyout favorably impacted the Prepared Foods segment’s performance in the last two quarters. To enrich Prepared Foods category, the company also announced the buyout of Original Philly Holdings in November 2017. Management continues to expect positive synergies from these acquisitions.

Robust Global Foothold & Product Portfolio

Tyson Foods has a significant presence in markets outside the United States. During fiscal 2017, the company sold its products in approximately 117 countries, with major sales from markets of Canada, Central America, China, the European Union, Japan, Mexico, Middle East, South Korea and Taiwan. Notably, fiscal 2017 sales to customers in foreign countries totaled $4.5 billion, of which $3.9 billion were related to export sales from the United States.

Moving to its product portfolio, Tyson Foods offers a wide array of meat products and commands a strong presence in beef, pork, chicken as well as processed and fresh meat food products categories. This acts as a buffer to the company’s sales and margins — if one category fails, the others can aid recovery. Also, Tyson Foods continuously innovates and adds products to an already rich food line-up. For fiscal 2018, the company plans to test line-up of meal kits and add more products to Hillshire snacking.

Valuation Perspective

A brief glance at some valuation metrics seems to indicate that Tyson Foods has enough room to run in bourses.

Tyson Foods with a price to sales ratio of 0.8 compared with that of industry’s 1.1 indicate that the stock has enough upside potential. The stock also looks attractive with respect to a forward price-to-earnings (P/E) multiple of 13.7x compared with industry’s 14.6x. A more-or-less similar picture emerges when comparing EV/EBITDA ratios. Tyson Foods holds the edge here with an EV/EBITDA ratio of 10.1 lower than 11 for the industry.

Other Stocks that Warrant a Look

United Natural Foods, Inc. UNFI delivered an average positive earnings surprise of 2.3% in the trailing four quarters. The Zacks Rank #2 company has a long-term earnings growth rate of 6.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sysco Corporation SYY, with a splendid earnings surprise record, has a long-term earnings growth rate of 9%. Notably, the stock carries a Zacks Rank #2.

Nomad Foods Limited NOMD has surpassed earnings estimates in the past three quarters. It carries a Zacks Rank #2.

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