Meaty Challenges Ahead! Tyson Food's Beef & Pork Margins May Shrink For Years: Analyst

BMO Capital Markets analyst Andrew Strelzik reiterated the Market Perform rating on Tyson Foods, Inc. TSN, lowering the price target to $46 from $50.

The company's Q4 EPS of $0.37 beat the consensus of $0.29 as better Beef/Chicken results more than offset softer Prepared Foods, Pork, and International.

The analyst sees earnings to remain limited in the medium-term without visible catalysts to drive meaningful earnings recovery over the next 24 months.

Beef margins likely will be a key EPS limiter through at least FY25 absent industry capacity adjustments, according to the analyst.

Strelzik lowered the FY24 Beef margin to -1.4% and introduced the FY25 Beef margin of -1.5% given the lack of heifer retention, the expected 2-year rebuild period, and the likelihood that Beef margins will get worse when heifer retention begins.

Per Strelzik, Chicken profit guidance for FY24 seems conservative as it does not assume much contribution from underlying industry margin expansion.

The analyst lowered the 2024 Chicken margin by 100 bps (to +3.5%) and introduced the FY25 Chicken margin of +5%. 

Pork breakeven and the absence of vertical integration puts TSN in a more challenged position than peers, the analyst adds.

Prepared Foods outlook appears solid, but faces incremental risks from potential consumer spending pressures and/or greater competitive pricing pressures that could impact performance, the analyst cautions.

Related: Tyson Foods Analysts Cut Their Forecasts After Q4 Results

Price Action: TSN shares are trading higher by 4.10% to $47.49 on the last check Tuesday.