We believe there may be a good opportunity with Tyson Foods stock (NYSE: TSN) at the present time. TSN trades at $59 currently and is in fact down 34% so far this year. It traded at a pre-Covid high of $82 in February and is still 28% below that level now. TSN stock has gained only 4% from the low of $57 seen in March 2020, much less than the S&P 500 which is up 50% from its March bottom. TSN stock has underperformed the broader market as restaurants and retail chains remaining shut over the last couple of months, on account of the lockdown, meant very low demand for TSNâs products. Additionally, the recent spike in Covid-positive cases has limited the stock rise over recent months.Â That said, with the lockdowns being lifted, supply constraints are likely to ease leading to higher volume sold. Also, the reopening of restaurants and retail chains is likely to boost revenue and margins in 2021. This could take the stock to over $80 â still below its pre-Covid peak â reflecting a potential upside of close to 40%. Our conclusion is based on our detailed comparative analysis on Tyson Foods stock performance during the current crisis with that during the 2008 recession in our interactive dashboard.
2020 Coronavirus Crisis
Timeline for 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020:Â WHO declares a global health emergency.
- 2/19/2020:Â Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020:Â S&P 500 drops 34% from the peak level seen on Feb 19, as COVID-19 cases accelerate outside China. Doesnât help that oil prices crash in mid-March amid Saudi-led price war
- Since 3/24/2020: S&P 500 recovers 50% from the lows seen on Mar 23, as the Fedâs multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
In contrast, here is how TSN stock and the broader market performed during the 2007-08 crisis
Timeline for 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 â 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
TSN vs S&P 500 Performance Over 2007-08 Financial Crisis
TSN stock declined from levels of close to $15 in September 2007 (pre-crisis peak) to levels of little over $7 in March 2009 (as the markets bottomed out), implying TSN stock lost 52% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of close to $11 in early 2010, rising by 47% between March 2009 and January 2010. In comparison, the S&P 500 Index saw a decline of 51% and recovered 48%.
TSN Fundamentals Over Recent Years Have Been Strong
Tyson Foods revenues increased from $36.9 billion in 2016 to $42.4 billion in 2019, due to higher volume sold. Along with higher revenues, margins also improved over recent years with EPS increasing from $4.53 in 2016 to $5.52 in 2019. However, the companyâs Q3 revenues saw an 8% y-o-y decline. Earnings came in at $1.44/share as against $1.84/share in the year-ago period, mainly due to lower revenue and higher tax expense. In contrast, we see how close rival Beyond Meatâs revenues are expected to trend going forward.
Does TSN Have Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
TSNâs total debt almost doubled from $6.3 billion in 2016 to $12 billion at the end of Q3 2020, while its total cash increased almost 4x from $350 million to $1,365 million over the same period. At the same time, the companyâs cash from operations remained stable at $2.7 billion. Though debt has increased, the companyâs increased cash balance and stable CFO generation is likely to help TSN weather the current crisis.
Phases of Covid-19 Crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns â no panic anymore despite a steady increase in the number of cases
- July-September 2020: Poor Q2 results, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations
Going by historical performance and in view of only a modest rally since March 2020, we believe Tyson Foods, Inc stock has the potential for more gains once fears surrounding the Covid outbreak are put to rest. The gradual lifting of lockdowns, opening up of restaurants and retail chains, and easing of supply bottlenecks is likely to lead to improved top and bottom line in 2021. We believe the stock has a potential upside of almost 40% from its current level given expectations of subdued growth in the number of new Covid-19 cases in the U.S. Our dashboard Trends In U.S. Covid-19 CasesÂ provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia.
What if youâre looking for a more balanced portfolio instead? Hereâs aÂ high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See allÂ Trefis Price EstimatesÂ andÂ DownloadÂ Trefis DataÂ here
Whatâs behind Trefis? See How Itâs Powering New Collaboration and What-Ifs ForÂ CFOs and Finance TeamsÂ |Â Product, R&D, and Marketing Teams
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.