Outlook Intact for No-Moat Tyson
We still expect short-term challenges in the firm's chicken and pork units to yield to our long-term targets for the firm.
In the wake of third-quarter results that were consistent with its fiscal 2018 guidance reduction on July 30, we do not expect to materially alter our $67 fair value estimate for no-moat Tyson (TSN). We still expect short-term challenges in the firm's chicken and pork units to yield to our long-term targets for the firm, calling for low-single-digit top-line growth against an 8% adjusted operating margin (versus 9% in 2017), on average, over the next decade.
Year to date, Tyson reported 7% sales growth and an adjusted operating margin of 8%, near our 6% and 8% full-year marks. The firm maintained its fiscal 2018 sales expectation of $40 billion to $41 billion and announced that it expects $42 billion in fiscal 2019, above our $41 billion target. Additionally, management reiterated its updated EPS outlook of $5.70-$6, reduced last week from $6.55 to $6.70 (we expect $5.84).
We continue to expect near-term challenges to be concentrated in Tyson's chicken and pork segments. Management cited lower competing protein prices as a headwind for chicken as cattle herd sizes normalize (leading to attractively priced ground beef) and trade feuds weigh on pork. Longer term, however, we expect chicken will take share from other protein sources due to its attractive cost and health profile, underpinning our long-term segment growth expectation of just under 4% for a unit that accounted for around 30% of fiscal 2017 sales.
Tyson's beef unit (just under 40% of fiscal 2017 sales) continued its strong run, with 5% year-to-date growth against a 6% adjusted operating margin compared with 5% in the same period of fiscal 2017. Management expects the unit to remain strong, forecasting a fiscal 2018 profitability mark above 6% and a similar level in fiscal 2019. While our near-term margin targets are similar, just below 6% in fiscal 2018 and 2019, we believe the unit's results will normalize in the low single digits as consumers continue their shift to healthier, lower-cost poultry.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Zain Akbari does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.