Did you know that The National Chicken Council estimated Americans would consume 1.42 billion wings during yesterday’s Super Bowl? I wonder how many of them were processed by Tyson Foods (NYSE:TSN). I wonder about a lot of strange things, but this one is specific because while this year’s the first since 2015 with no projected growth in wings-eating, TSN stock is on a roll.
Results for the December quarter, the first of its 2022 fiscal year, beat analyst estimates handily. The meat processing company earned $1.13 billion, or $3.07 per share, on revenue of $12.9 billion. The company beat revenue estimates by just 6.3% but beat earnings estimates by 48%.
Credit inflation. Tyson took advantage of rising costs to raise prices substantially, and consumers paid. It’s a contrast to the Great Recession of 2008-2009, when cash-strapped consumers traded down on protein options. Wings alone, the Chicken Council reported, were 2.59% more expensive last week than a year ago.
Someone knew what was coming. Tyson stock jumped in December, by over 10%, even while other stocks were rolling over. Sone analysts are now telling investors to buy Tyson as “an inflation safety trade,” even while it’s well above its recent trading range.
They may have a point.
The Consolidator
So far, the 21st century has not been kind to the meat industry. Tyson began life as an Arkansas chicken producer and has led the wave of industry consolidation. It bought beef giant IBP for $3.2 billion in 2001, then pork producer Hillshire Farms for $8.5 billion in 2014.
Consolidation worked. During the 2010s Tyson grew its dividend from 10 cents a share to 42 cents. The stock’s gains greatly exceeded those of the average S&P 500 index stock.
Then came the pandemic. Tyson stock fell hard and has only recently jumped past its 2019 highs. The biggest problem was a labor shortage, with so many workers getting sick. Tyson’s initial response was to improve conditions for workers. Its other response was to ramp up automation. This hurt results in the near term but has now begun to pay off. Even with its latest gains, Tyson stock’s performance over the last two years still trails that of the S&P.
Is It Sustainable?
Tyson now needs almost 10 million acres of land to grow enough corn and soybeans for its animals. That’s mostly soybeans for the birds, corn for the cows, and a half-and-half mixture for the pigs.
Tyson’s growth, and its emphasis on cost-cutting, have brought out the critics. It’s being called a monopoly, especially in chicken. Environmentalists criticize it for its sustainability practices. The Biden Administration may blame it for inflation.
But scale and automation are the best tools to fight rising costs. Tyson is seeing demand in both domestic and international markets. It’s the globe’s low-cost protein producer. Industry analysts may say there are market headwinds. But the low-cost producer is always the winner in that kind of environment, and Tyson is the low-cost producer.
The analyst community has yet to catch on. Of eight analysts following Tyson as tracked by TipRanks, only four are in the “buy” camp. The average price target is very close to what investors are paying now, around $98 a share.
The Bottom Line on TSN Stock
History says that when you buy stocks at their highs, on arguments that “it’s going to be different now,” it ends in tears. Just ask those who bought growth stocks last year, or cruise stocks before the pandemic. TSN stock may be the exception. It’s rising because it was down. That rise may just be getting started.
One reason Beyond Meat (NASDAQ:BYND) stock has been such a disaster over the last year is competition from Tyson. It has been in the faux-meat business since 2019 under the “Raised and Rooted” brand. And, in case you were wondering, more than 160 million plant-based chicken wings were forecast to be consumed during yesterday’s game, according to the group Compassion in World Farming.
If you look at long-range charts, Tyson stock is just playing catch-up. Its dividend currently yields 1.88%. Rising margins may allow that pay-out to increase soon. The objections to its price hikes have, so far, been political. People are paying.
The stock is not nearly as expensive as it looks.
On the date of publication, Dana Blankenhorn held no position in any stock mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack.