Tyson Foods Remains BMO's 'Top Pick' After Q2 Print

Tyson Foods, Inc. TSN reported second-quarter results Monday that came in better than expected and reinforced its status as BMO Capital Market's "top pick" for 2019.

The Analyst

Kenneth Zaslow maintains an Outperform rating on Tyson Foods with a price target lifted from $82 to $90.

The Thesis

Tyson benefited in its fiscal second quarter from its prepared food business, which showed an all-time second-quarter high in terms of profit and margins, Zaslow said in a Tuesday note. (See the analyst's track record here.)

The company also saw sequential margin improvement in the pork business as its strategy of enhancing revenue per head on premium programs and growing its export business paid off, he said.

Beef margins were in-line with expectations in the quarter, but profits hit an all-time second quarter high despite weather disruptions, the analyst said. On the other hand, the chicken business saw margin pressure due to issues at some of its tray pack plants and a mark-to-market hedging loss on grains, he said.

Tyson also maintained its fiscal 2019 EPS guidance of $5.75 to $6.10, which looks conservative, as it includes a negative impact from African swine fever but leaves out potential pricing benefits, Zaslow said.

Tyson's outlook for fiscal 2020 also looks favorable, as it calls for an increase in operating profit growth absent the impact of African swine fever, the analyst said.

The second-quarter report shouldn't be seen as "representative" of Tyson's future earnings, as the company's profit outlook "should far exceed" what was reported Monday, according to BMO.