UPDATE: BMO Capital Upgrades Tyson (TSN) to Outperform
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(Updated - October 11, 2016 9:20 AM EDT)
BMO Capital upgraded Tyson (NYSE: TSN) from Market Perform to Outperform with a price target of $84, implying upside of 20%. Analyst Kenneth Zaslow sees opportunity given the "divergence between fundamentals and stock price."
"We are upgrading TSN to Outperform as strong underlying fundamentals across its segments should create upside to earnings in F2017 and sustainable earnings growth through at least 2018. We believe that TSN has become a compelling investment opportunity as the improvement in fundamentals and progress on its strategic initiatives have diverged from its recent stock price performance/valuation. We have increased our price target to $84, which implies 20% potential upside from TSN’s current stock price, reflecting 6.5-7.0x EV/EBITDA or 16-17x P/E to our upwardly revised F2017 outlook," said Zaslow.
Discussing concerns about a recent class action lawsuit, the analyst said, "The operational and financial impact from the class action lawsuit likely will be limited, though we would not be surprised if the lawsuit lingered for at least 4-5 years. The merits of the case may not become a factor for several years; the chicken industry likely will mount a compelling defense based on several observations including: 1) chicken production has increased every year except for 2009 and 2012 when corn hit nearly $7.00 in 2008 and $7.50+ in 2011; 2) an estimated 28% of the industry filed for bankruptcy between 2008-2011; 3) lawsuit focused on GD whole bird prices but not the parts including BSB prices, which have fluctuated far greater than whole bird prices; 5) beef prices surged to record highs every year from 2011 to 2015, while pork prices hit record levels in 2010, 2011, and 2014; and 6) there have been wide variances in operating performances among companies, while TSN remains a buyer of breast meat and has thrived with low breast prices."
Shares of Tyson closed at $70.50 yesterday.
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