Tyson Foods Is Very Stable – Tyson Foods, Inc. (NYSE:TSN)

Introduction

With the stock market downturn due to COVID-19 I have purchased more shares of Tyson Foods Inc. (TSN). Tyson Foods has shown stable revenues and earnings over the past decade with many major acquisitions playing a part. Unlike many other companies during this COVID-19 crisis Tyson Foods may actually benefit due to increased grocery shopping. Along with this the company has a solid balance sheet which is why I decided to buy more.

Source: Grocery.com

Sufficiently Strong Financial Condition

For Tyson Foods the current ratio is 1.30x as of the most recent quarter. This means it can pay its current debts once over and have left over assets. Tyson Foods’ quick ratio is 0.52x meaning that the company has the ability to pay half its current debts with cash and receivables alone. Financial stability is a big deal for companies right now as there is so much uncertainty in how long the outbreak quarantine will last.

Tyson Foods’ inventory is rather liquid as it is a food product and has a 5 year average inventory turnover ratio of 10.89x. Along with this the D/E (mrq) is 1.32x showing that the business isn’t too highly leveraged. The company also has a time interest earned ratio of 6.12x for 2019 meaning that it can’t meet these interest expense 6 times over. Overall financial stability is really a huge factor in the current environment that businesses are currently in and Tyson Foods has great positioning.

Earnings Stability

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

$5.52

$8.19

$4.79

$4.53

$2.95

$2.37

$2.31

$1.68

$1.97

$2.06

Source: Data Pulled From SEC 10-Ks

As can be seen above Tyson Foods also has had a positive EPS over the past 10 years. Although somewhat cyclical due to variances in pricing of products and cost of producing the business is in an industry that always has demand. Over the years Tyson Foods has made strategic acquisitions and divestitures to increase scale while focusing solely on protein helping the business to grow its earnings.

Dividend Record

For me personally I like to get a return not only in value but also from dividends. Dividend history and current payout are also good factors to look at when looking for a stable company during uncertain times. For Tyson Foods, the company has paid a dividend for over 20 years straight and currently has a dividend of $1.68 per year- a yield of 3.13%. This come out to be a payout ratio of 46% using a 10 year average EPS of $3.64 which I believe is maintainable.

Price

Using the 10 year average EPS above of $3.64 and a price of $57 the P/E is 15.66x which is easily acceptable. On the basis of the 2019 EPS alone the P/E is 10.33x. I also like to look and see if the price to book vale per share isn’t outlandish. Using the total stockholder equity and shares outstanding from the 2020 10-Q for Q1 Tyson Foods’ book value per share is $39.50. This means that price to book value is 1.44x which really is pretty solid. Another valuation ratio I like to look at is the price to sales. In 2019 sales per share were $116.12 therefore the P/S is 0.49x which means that at $57 per share you are paying around 50 cents for each dollar of sales.

Source: NPR

Conclusion

Overall the reason I purchased more of Tyson Foods is because of the stability in this business. The demand for protein based food won’t disappear due to the COVID-19 virus and if anything the food hoarding that has been going on may boost sales for Tyson Foods. The company also has a great balance sheet even despite all the acquisitions Tyson Foods has made. Tyson Foods has a stable earnings stream and enough funds and liquidity to come out of this coronavirus downturn in good shape. At the price that Tyson Foods is trading at this stability looks even more enticing and is why I to my position.

Disclosure: I am/we are long TSN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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