Tyson Foods Headwinds Lead BofA To Drop Bullish Stance

Tyson Foods, Inc. TSN faces multiple COVID-19 related headwinds and operational challenges, according to BofA Securities.

The Tyson Analyst

Peter Galbo downgraded Tyson Foods from Buy to Neutral with a price target lowered from $70 to $60.

The Tyson Thesis

Data from USDA shows beef slaughter rates are down 35% versus the pre-COVID 19 crisis, while pork slaughter rates are down 40%, Galbo said in a Tuesday downgrade note. (See his track record here.)

These headwinds are quite notable for Tyson — even if the slaughter rates improve in the near-term — for three reasons, the analyst said.

• Tyson is paying worker bonuses.
• Higher ongoing costs related to PPE and safety.
• Plant inefficiencies from social distancing and worker absenteeism.

The latter two factors could remain a concern for at least the next year and for up to 18 months, he said. 

Tyson could benefit from several positive catalysts that offer a partial offset of the multiple challenges, Galbo said.

For example, Hedgers Edge pork and beef margins are near all-time highs, and commodity chicken prices are up notably as producers pull back on their supplies, the analyst said.

The concept of beef shortages in the grocery channel shouldn't pose an issue, as producers shift resources away from food services toward retail to better address growing demand, he said.

BofA's revised $60 price target is based on 13 times calendar 2021 EPS, which the firm said represents a 20% to 25% discount to the S&P 500, which is a multiple consistent with Tyson's historical average during recessionary periods.

TSN Price Action

Shares of Tyson Foods were trading higher by 3.49% at $57.25 at the time of publication Tuesday.

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