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Why Tyson Foods Plummeted 18% in February

By Jon Quast - Mar 5, 2020 at 1:49PM

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A market correction isn't a good time to report weak earnings and lay off employees.

What happened

Shares of Tyson Foods (TSN -0.13%) fell 17.9% in February, according to data provided by S&P Global Market Intelligence. For Tyson, when it rains it pours; it was repeatedly hit with bad news during the month. First-quarter earnings missed expectations on the top and bottom lines, exports to China slowed due to the COVID-19 coronavirus outbreak, and the broad market correction all contributed to the stock's abysmal performance.

So what

Tyson reported Q1 2020 earnings on Feb. 6, and it wasn't great. Quarterly sales were only up 6% year over year; analysts were hoping for closer to 9% growth. Worse, earnings per share (EPS) grew just 1% to $1.52. While management tried to be upbeat, the earnings release coincided with an announcement that the company was laying off 500 employees -- a move that doesn't exactly instill investor confidence.

Man panics as a stock chart turns red.

Image source: Getty Images.

Later in the month, Tyson presented at the Consumer Analyst Group of New York conference. Management wanted investors to focus on Tyson's global opportunity as one of the only U.S. meat producers large enough to handle the growing demand. Instead, investors focused on an overall industry slowdown of exports to China due to the COVID-19 coronavirus.

Given things were already rough, investors weren't gobbling up Tyson's stock as the market sold off. On the contrary; Tyson's stock was down a little more than the rest of the market during the last week of February.

Now what

Poor results coupled with market fear will send a stock down. But so far in 2020, Tyson's stock is down a startling 25% (and still falling). When looking at popular valuation metrics, the stock now trades closer to its historical price-to-sales and price-to-earnings valuations. And consider that long term, it's hard to imagine demand for beef, pork, and chicken decreasing. That being the case, now might be a good time for value investors to add Tyson to their watch lists.

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