Morningstar | Tyson Finishes a Rocky Fiscal 2018, but Long-Term Outlook Intact; Shares Fairly Valued
We do not plan a large change for our $67 per share valuation for no-moat Tyson after it posted fourth-quarter results. Near-term challenges persist in its chicken and pork units, partly offset by the prepared foods and beef segments. As we believe factors that are weighing on Tyson and the sector are cyclical, our long-term average targets (3% sales growth, 8% adjusted operating margin through fiscal 2027) should not change significantly.Tyson saw $40.1 billion in fiscal 2018 sales against an 8.2% adjusted operating margin and $6.16 in adjusted diluted EPS (versus our $40.3 billion, 7.9%, and $5.79 respective marks). Management cut its fiscal 2019 sales forecast by $1 billion to $41 billion (matching our forecast) and set adjusted EPS guidance at $5.75-$6.10 (versus our $5.95 pre-announcement target).
Lower competing protein prices crimped chicken’s top-line growth while supply-demand imbalances and trade feuds weighed on pork. However, we still expect chicken (30% of fiscal 2018 sales) to win share from other proteins long term, due to its lower production cost and attractive health profile, leading to our mid-single-digit 10-year segment growth mark.
The beef unit (39% of fiscal 2018 sales) saw a strong year, with 4% demand-driven sales growth against a 6.7% adjusted operating margin (up 70 basis points from 2017). While we expect mid-single-digit results in fiscal 2019, we foresee low-single-digit long-term marks as consumers shift to poultry for health and cost reasons.
We believe the prepared foods unit (22% of fiscal 2018 sales) should drive long-term profitability, posting low-double-digit adjusted operating margins that should remain ahead of Tyson's other divisions (consistent with its as-expected 11% fiscal 2018 mark). However, while the segment contains strong brands, we contend that its relatively small share of overall sales and the hard-to-differentiate nature of the rest of Tyson's portfolio justify our no-moat rating for the firm.
Tyson Foods is a food company. The company's operations consist of breeding stock, contract farmers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products, including animal and pet food ingredients. Through its wholly-owned subsidiary, Cobb-Vantress, Inc., the company is engaged as poultry breeding stock supplier. The company also processes live fed cattle and hogs and fabricates dressed beef and pork carcasses into primal and sub-primal meat cuts, case-ready beef and pork and fully-cooked meats. The company produces a range of fresh, frozen and refrigerated food products. The company operates in Beef, Pork, Chicken and Prepared Foods segments.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.