Tyson Foods, Inc (NYSE:TSN) Is An Undervalued Dividend Growth Stock

Tyson Lags The Market

 The consumer staples industry (NYSE:XLY) has been one of the best-performing groups in the pandemic. Within the group, there are some deep-values and Tyson Foods (NYSE:TSN) is one of them. Not only is Tyson Foods a growth stock but it is a steady, blue-chip consumer food company with a healthy outlook for dividend growth. When it comes to value, the stock is trading at only 12X F2020 EPS and 10X F2021 where the group’s leaders are in the 25X to 30X range.

There is a caveat. One of the reason’s Tyson Foods is trading at such a deep-value is a Federal investigation into price-fixing. There have already been a number of indictments for poultry industry executives include a former executive at Tyson. While the company is cooperating with authorities in such a way that it may escape formal charges it is not out of the woods yet.

Tyson Foods Reports A Mixed Fourth Quarter

Tyson Foods had a great quarter but not one without disappointment. The company reported $10.69 billion in revenue which is up 6.7% from the prior quarter but down -2.2% YOY and 380 basis points below the consensus mid-point. The company says results were driven by general increase in volume that was offset by mix and price declines from the previous quarter.

The company's total volume increased by 5.9% while prices fell an average 0.6%. Pork, the smallest segment by volume, grew 15% but had a 6.0% decline in pricing while Beef volume grew 11.8% and prices fell 1.0%. The Chicken, Packaged Foods, and International Segments all saw a decline in volume in the 4th quarter, some also impacted by lower prices, but results remain solidly higher for the year.

Moving down the report, the company was able to expand its margins despite missing on the top-line. The company’s operating income grew 40% on a YOY basis and drove solid bottom-line results. On a GAAP basis EPS came in at $1.90 and $0.70 better than the consensus while Adjusted EPS of $1.81 beat by $0.62. In terms of cash and liquidity, management says there is more than $3.2 billion on hand and expects to maintain that level in fiscal 2021. Looking forward, the company is guiding revenue in the range of $42 to $44 billion and just shy of the consensus mid-point.

"We anticipate the Beef and Pork segments will remain strong, although not at fiscal 2020 levels, and we believe the Chicken and Prepared Foods segments will likely strengthen in fiscal 2021 as compared to fiscal 2020," updates the company. Along with that, the company is expanding its foot print in the International segment by 100K metric tons of cooked-poultry capacity in an effort to better serve developing markets.

Tyson Foods Is An Aggressive Dividend-Grower

One of Tyson’s many attractive features is its history of dividend growth. The 5-year CAGR is running near 36% and there is no reason to think it won’t continue to grow at a high double-digit rate. At face value, the payout ratio is running around 33% but that doesn’t account for the Q4 beat or expected growth in 2021. The payout ratio versus 2021 consensus is sub-30% and backed up by the aforementioned large cash position. Add in the low levels of debt, debt that was reduced by another $690 billion over the quarter, and the high-coverage and this 2.7% yield looks as safe as can be.

The Technical Outlook: Tyson Is A Laggard Ready To Pop

The chart of TSN is much different from most others in the group. Where the average Consumer Staple is at least trading at its pre-pandemic levels, some are well above that level, TSN is wallowing near the March lows and they shouldn’t be. This company is producing strong cash flow, is more than well-capitalized, has relatively low debt, and little to fear other than an already-expected ending to the poultry-price-fixing scandal.

It looks like TSN may have already begun its move higher but there are risks. While price action and indicators are bullish, the stock is still trading within its post-COVID range and below potential resistance. Resistance could be strong at the $66 and $68.50 levels so beware. A break above those levels would be bullish, when that happens we can expect gains in the range of 100% to 200% over the next two to four quarters.