Tyson (TSN) Buy Rating Maintained at Pivotal Research

Pivotal Research maintained a Buy rating on Tyson (NYSE: TSN) with a price target of $55. The stock declined after the company reported Q3 results and guidance. Analyst Timothy S. Ramey noted weak beef results.

"Tyson Foods reported 3Q15 EPS at $0.80 vs. $0.75, up 6.5%; Street consensus was $0.92 with a range of $0.87-$0.99 – our estimate was $0.87 the low end of the range. TSN does not offer quarterly guidance however annual guide was reduced to $3.10-$3.20 from $3.30-$3.40 for FY15. We are reducing our 4Q estimate to $0.89, previously $1.01 and our full-year to $3.20 (previously $3.40); the Street is at $3.44. Note that guidance is based on 52 weeks, but this is a 53-week year; one could reasonably add about $0.04-$0.06 to guidance," said Ramey.

Discussing beef in more detail Ramey said, "Sales rose 2.8% on a 6.9% increase in price and 2.8% lower volume. EBIT margin was disappointing at a loss of $7 million versus a 2Q loss of $20 million. The weak export market and strong dollar hurt the performance for the 3Q and the 4Q has continued under pressure. Specialty items that might go for big dollars per pound in Korea or Japan are now being sold “into the grind” which means that the company is accessing much lower selling prices and margins. Together with the port strike and slower movement off of feedlots, beef will be difficult for a few more quarters – we model it profitable but well below normal margins. The company is managing for margin not market share in the beef business."

"We continue to view Tyson as very attractive. It has better EPS growth (over 10%) than its peers, a lower valuation than peers; a world-class management team and powerful cash generation. Tyson remains on a strong growth trajectory, driving to a more stable and profitable company but the stock is valued as if Tyson still has all the volatility of its past. We believe this is the misprice in the shares. Having achieved a debt/EBITDA ratio of 2.0x a quarter ahead of plan, the company expects to resume its share repurchase in the 4Q. That is great news for returns and future growth," added the analyst.

For an analyst ratings summary and ratings history on Tyson click here. For more ratings news on Tyson click here.

Shares of Tyson closed at $44.35 yesterday.

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