Credit Suisse: Tyson Foods Operating At Its Best, Sees Higher Grain Costs Coming

Credit Suisse came away from Tyson Food's TSN fourth quarter highly impressed with management's strategic direction and execution. In a rare move, management said that it will cut chicken production through 2Q to trim inventories and ensure higher pricing next summer. This is positive news given the tendency in the industry to overproduce. We remain concerned, however, that earnings will decline in the back half of FY 12 when hedges on grain costs roll over. As a result, Credit Suisse thinks the good news is mostly baked into the stock. Pork and beef operations continue to enjoy a rational industry backdrop and are running at above-normalized margins. Chicken has a chance to deliver a "normal" year of 5-7% margins but this now depends to a large degree on whether chicken competitors make cutbacks of their own to follow Tyson's lead. Credit Suisse has a $18 PT and Neutral rating on TSN TSN is trading higher at $16.38