Our first idea is a food producer that beat analysts’ earnings estimates by $0.15 last quarter, and its shares were recently upgraded by CLSA from ‘Outperform’ to ‘Buy’. Our second recommendation is profit-taking on a previous stock idea.
Buy: Tyson Foods, Inc. (TSN)
From Weiss Stock Ratings Heat Maps
With the S&P 500 pulling back 3.5% from its August high this week, the timing is right to peer into the Highest-Rated Stocks Heat Map.
In this manner, we can take advantage of broader market weakness and purchase some of the highest-rated stocks at a discount. A stock that caught our eye was Tyson Foods, Inc. (TSN).
Tyson experienced a larger pullback compared to the S&P 500 in recent weeks. This is due to speculation that the company engaged in a price-fixing scheme in the poultry market. The company staunchly opposes those allegations and is ready to defend itself in court.
Tyson is one of the world’s largest food companies, with leading brands like Jimmy Dean, Hillshire Farm, Sara Lee, Ball Park, Wright, Aidells and State Fair. The company is a recognized market leader in chicken, beef and pork as well as prepared foods.
One of the first items that grabbed our attention was the impressive earnings trend at the company. Tyson generated record earnings-per-share (EPS) of $1.25 during the third quarter, which was up 51% from the year-ago period. The company also raised 2016 EPS guidance to $4.47 to $4.57.
Expectations for the company’s Q4 EPS on November 21 are for $1.13, which would mark a 79% increase from the year ago period.
But there’s more.
Tyson’s third-quarter results came with:
• A 44% increase in operating margins compared to the year-ago quarter, aided by record earnings in their chicken division and improvement in the beef segment.
• A noted turnaround in operating cash flow, which they used to buy back 6.6 million shares during the period.
• A 41% year-over-year increase in net income to $484 million.
Meanwhile, Tyson is undervalued relative to its industry peers on a price-to-sales basis. Currently, that metric stands at 0.73, which is substantially below the industry average of 2.23.
What about the chart?
Tyson’s 14.5% washout in recent weeks found support at the 200-day moving average and has begun to turn higher.
The chart above shows the sharp decline in Tyson’s share price in the wake of price fixing allegations. The stock bounced from its 200-day moving average and is trying to close the October 7 gap.
Tyson comes with a Heat Maps A rating, has a good business model and healthy balance sheet. The October decline offers an opportunity to purchase such a company at a discount to the broader market.
Mike Burnick, Weiss Stock Ratings Heat Maps, published by Money and Markets, a Division of Weiss Research, Inc.,
www.weissresearchissues.com/weiss-stock-ratings-heat-maps, 1-800- 291-8545, October 14, 2016