Tyson Foods (NYSE: TSN) has been quietly trending lower on fears of inflation, slowing sales and reduced profitability but that has the stock at levels that may be too cheap to ignore. The stock is trading at only 7.75X its 2023 adjusted EPS guidance and the odds for outperformance are high. Relative to its peers in the Consumer Staples Sector, only Kraft Heinz has a better value-to-yield combination and it, too, is on track with its turnaround.
Tyson Foods embarked on a cost-saving/operational improvement plan early in the year. The news is that improvements have already taken hold, are delivering cost-savings above target and are expected to accelerate in 2023. The company reports $700 million in cost savings for 2022, along with a $1 billion reduction in debt, and is expecting to see savings exceed $1 billion in 2023. This is good news for investors of all stripes but specifically for dividend investors who want a cheap, higher-yielding dividend growth stock with a higher-than-average chance of multiple expansion and capital gains in the coming quarters.
Tyson Confirms Bottom On Mixed Results
Tyson reported a mixed quarter but that news was offset by the guidance and that has the premarket action moving higher and confirming a bottom in the price action. The company reported $13.74 billion in consolidated revenue for a gain of 7.3% over last year. This is 185 basis points above the consensus estimate and supported by higher pricing but the margin news is weak.
On a segment basis, strength in the Chicken, Prepared Goods and International segments was offset by some weaknesses in the Beef and Pork segments. In regard to Beef and Pork, the Beef segment saw an increase in volume that may have been spurred by a large decline in prices. As for Pork, it saw a decline in both volume and prices but neither was enough to offset full-year strength. On a full-year basis, Tyson's revenue grew by 5% and it is expected to grow again by 3.5% in 2023. The bad news is that margins were weak in Q4 and led to a 520 basis point contraction in the adjusted margin that is due in large part to declining margins in Beef, Pork and Prepared Foods but once again this news is offset by the guidance.
Tyson is expecting to see 2023 revenue in a range of $55 to $57 billion which is up 3.5% YOY at the low end of the range and the low end is 280 basis points above the Marketbeat.com consensus figure. There was no target for EPS but, assuming margin improvements are made, EPS should improve as well.
Analysts May Change The Tune For Tyson Foods
The analysts have issued a steady string of downgrades and price target reductions over the past few months that have the consensus sentiment down to a firm Hold and the price target relatively flat on a YOY basis. The takeaway here is the price target is still about 30% above the price action and the analysts may change their tune now the Q4 results are in. The combination of improved profitability, the 7.75X valuation, the 2.7% dividend yield and the outlook for distribution growth could easily get the analysts to firm their ratings and/or price targets.
Turning to the chart, the stock appears to have hit the bottom in early October and then retested and rebounded from it in early November. Now, the stock is moving higher on the back of good news and confirming the bottom if not a full reversal in the price action. The next hurdle for the market will be the $69 level, a move above that would be bullish and could take the stock up to the $72 level. If not, this stock may become range bound at these levels until it can produce more evidence its turnaround plan is working. 
