Why BofA Is Cautious On Tyson Foods' 2021 Outlook

Tyson Foods Inc. TSN shares were trading flat Monday after BofA Securities lowered its view on the U.S. protein processor's credit. 

BofA analyst Brian Callen downgraded Tyson Foods’ cash bonds to Marketweight and its CDS to neutral.

The Tyson Foods Thesis: After Tyson Foods soared 50% from its March lows, Callen said he sees the company’s delayed outlook for chicken profitability as a major hurdle.

Tyson Foods’ relative value has compressed in relation to its peers, and it has few catalysts to increase its balance sheet going forward, the analyst said.

Although BofA expects Tyson Foods to increase its profit on pork and beef by 10% for the full year 2021, mainly due to exports, Callen said this won’t be enough to offset tighter margins across chicken sales due to increased production costs.

"Our vocal point of FY21’s disappointing outlook was on Chicken where segment profitability is expected to be lower y/y due primarily to swelling grain prices. This more than offset slightly improved expectations from the Beef segment after a strong 1Q."

Tyson Foods reported first-quarter 2021 adjusted EPS of $1.94, which beat the BofA estimate of $1.67, and reported adjusted EBITDA that increased 18.3% year-over-year, ahead of the BofA estimate of 0.4%.

Callen said he sees the 2021 forecast as the sticking point for the company.

Tyson Foods reported incremental costs due to COVID-19 of $440 million vs. a prior $330 million, and the analyst said he sees the costs continuing to grow, particularly in the beef and pork segments.