Tyson Foods ($TSN) today downgraded it’s outlook for FY2018 after being quite optimistic on the year. Looking at a company press release, they cite a few major reasons why they are downgrading guidance from $6.55-$6.70 yearly EPS to $5.70-$6.00 per share. Cited reasons why Tyson Foods feels this way include:

  • “Uncertainty in trade policies and increased tariffs negatively impacting domestic and export prices”
  • Volatile commodities markets
  • Slowing domestic chicken demand
  • Margins in pork slimming due to off kilter supply and demand
  • Less positive tax reform benefit

Why you should take a bite out of Tyson Foods now

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Trade tariffs and commodities markets are no joke, but Tyson Foods can benefit from the micro-level industries that are popping up, mainly because this is their wheelhouse.

Frozen meal sales are forecast to grow to $47 billion annually by 2026, and no signs of slowing down. The majority of those frozen sales are chicken, and something the industry might not be fully realizing from a top line perspective is the addition of home meal kits, a la Blue Apron ($APRN) and Hello Fresh. (Let’s also not forget that on the drop of a dime, Whole Foods can start the meal delivery kits as well).

Tyson Foods could experience significant growth within the frozen and meal kit industries, and cutting out traditional distributors and going direct to consumer, more than mitigating any potential damage from tariffs and trade wars.

Unfreezing profit potential in Tyson Foods

Looking at Tyson Foods and public financial statements, and comparing EBITDA multiples of competitors like Hormel ($HRL), Kellog Company ($K), Dean Foods Company ($DF), and General Mills ($GIS), Tyson still has quite a bit of growth. Taking a peek under the hoods of all of these companies, we can see that Tyson can trade a bit higher at an average 11.3x multiple, and we can put a $91.89 price target on the company, representing a healthy 45% upside.

The company also pays a semi-decent dividend, at 2.04%, even at a modest 12.8% payout ratio.

So kick back, relax, grab a TV tray, and burn the roof of your mouth on a brownie because Tyson is set to be delicious soon.

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