Tyson (TSN) is taking off on Monday morning after a strong quarterly report and good guidance, but there could still be room to run, according to bullish analysts touting the staples stock.
After a quiet pre-market that promoted only a slight move on a solid reported quarter, the conference call commentary and supportive charts opened up a much larger move of nearly 6% to the upside by the time the call concluded. The stock has begun to touch all-time highs after the move.
"We continue to see TSN as an attractive way to play the likely increased global demand for animal-based protein, considering the impact of African Swine Fever (ASF) in China and other Southeast Asian markets," Barclays analyst Ben Theurer said in a note on Monday. "With global markets rattled today on increased anti-trade rhetoric by the US and Chinese governments, we believe TSN stock will likely outperform peers and the market, yet not necessarily be up significantly."
He reiterated his "top pick" status to the stock and a price target of $100 per share -- about double the price of the stock at the start of the year.
The pivotal commentary keeping analysts aboard the stock story is the profitability forecast, which has remained resilient to the trade tamp.
"Importantly, EPS guidance was reiterated," J.P. Morgan analyst Ken Goldman said.
He added that the recent acquisitions of assets from Brazilian protein producer BRF SA (BRFS) and Keystone Foods are now folded into guidance, encouraging those cautious on the execution of the pricey pickups.
"As noted when we acquired Keystone Foods on November 30, we believe some of our biggest growth opportunities are in value-added foods and international markets," CEO Noel White said in the first quarter. "In addition to domestic benefits, the Keystone acquisition provided us with a scalable production platform in the Asian poultry market. The acquisition of these BRF facilities will help complement and strengthen our presence in Thailand, and provide new capabilities in Europe, enhancing our ability to serve growing global demand for value-added protein."
With demand expected pickup globally, the $340 million deal gives the company a foothold in Asian production and European distribution to diversify its revenue base and tap into these trends.
The company estimates that about 90% of global protein consumption growth will take place outside the U.S., with 60% of the volume growth coming from Asia over the next five years, said Donnie King, group president of International for Tyson Foods.
"Increasing our international footprint with in-country operations and export capabilities will help Tyson Foods strategically access new markets and better serve the growing global demand for our value-added protein," said King.
China remains a yet-to-be seized opportunity; the upside case here from the closer production lines should buoy some bullishness. Additionally, its alternative protein play, which is proposed to be positive for margins, remains a lever yet to be pulled firmly by the company.
The company also reiterated its earnings and margin guidance, despite the pressures on the protein business, assuaging that lingering concern.
"We are maintaining our guidance of adjusted earnings of $5.75-$6.10 per share for fiscal 2019," White said. "With a strong export environment expected to continue into next year, we're optimistic about the earnings potential for each of our segments in fiscal 2020."
Analysts also noted a lower expected tax rate as a rationale for profitability pushing higher.
"Tyson also maintained its margin outlook broadly (and nudged it higher for Prepared Foods), with comparable or better performance expected in FY20 for all segments," Piper Jaffray analyst Michael Lavery noted. "We expect TSN to achieve 3-4% average organic sales growth and 10-11% annual EPS growth in CY18-20E."
Given that outlook, Lavery expressed his belief that shares still remain undervalued and reiterated his "Overweight" rating. His bullish rating is in line with the sell-side consensus, which remains a "Buy."
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