Tyson Foods (NYSE:TSN), like most meat processors, became uncomfortably acquainted with the coronavirus this spring. Outbreaks at many of its meat processing plants across the country closed down those plants and temporarily halted much of its production.

Moreover, the company now faces scrutiny from the Justice Department that could have both legal and profit implications. Consequently, Tyson stock has not seen as large a recovery as many other stocks.

However, these challenges could serve as an opportunity for investors in this agriculture stock. About one-fifth of the chicken, pork, and beef produced in the U.S. comes from Tyson. Furthermore, with the country's appetite for protein continuing to grow, Tyson stock should return to a growth pattern once fears related to the pandemic pass.

A large number of chickens at a chicken farm.

Image source: Getty Images.

Tyson plagued by COVID-19, price-fixing probe

As an essential business, Tyson Foods remained in operation through the COVID-19 pandemic, at least when it could. The disease struck workers at numerous plants, forcing some into temporary closures. Pork plants in Waterloo, Iowa, and Logansport, Indiana, shut down for a time in April and May.

This led to a reduction in earnings in the prior quarter as quarterly earnings fell by almost 36% on a year-over-year basis. Though Tyson did not offer forward guidance, analyst earnings projections point to an 18.5% reduction in profits for fiscal 2020.

On top of that, the Justice Department recently implicated Tyson and direct peer Pilgrim's Pride in a price-fixing scheme. Tyson has moved to address the damage quickly, agreeing to report on its competitors in exchange for leniency.

Both challenges have affected Tyson stock dramatically. Like most stocks, it fell along with the market in February and March. However, its recovery from the March lows has remained relatively muted. It has risen by more than 50% since hitting the low of $42.57 a share in March. However, Tyson stock sells at a discount of more than 31% from its January high of $94.24 per share.

TSN Chart

TSN data by YCharts

Company financials point to the stock's potential

With all of the negative sentiment, investors can easily get caught up in the moment. Nonetheless, concerning COVID-19, investors need to remember that this too shall pass. When the country moves past the pandemic, the picture should improve dramatically for Tyson stock.

The COVID-19 outbreaks and the cuts in production will subside at some point. While price increases for its products may level off as the pandemic runs its course, profit growth projections appear promising. For the next five years, analysts forecast average earnings increases of just under 14.1% per year.

Additionally, the production of meat and poultry hit record highs before the start of the pandemic. Over the last year, prices for meat, poultry, and fish rose by 10%, according to the Bureau of Labor Statistics. This occurred as the U.S. Department of Agriculture reported that demand for food at grocery stores increased by 13%.

Grocery sales will likely level off as more restaurants reopen. Still, the growth becomes all the more appealing when the stock sells at a forward price-to-earnings (P/E) ratio of just under 10.5. Investors may also benefit from some degree of multiple expansion. The average forward P/E of the stock has stood at around 12.2 in recent years. Between a modest undervaluation and the company's projected profit growth rate, a recovery could drive substantial returns.

Furthermore, Tyson stock has treated dividend investors well over the years. This year's annual dividend of $1.68 per share yields about 2.6%. It also represents a 12% increase from the previous year. This follows a consistent pattern of annual dividend increases over the last few years. Moreover, the dividend payout ratio, the percentage of profits going to the payout, stands at about 38.2%. This leaves the company well-positioned to both maintain and increase the dividend, despite a temporary drop in profits.

Admittedly, the COVID-19 outbreaks and the Justice Department probe facing Tyson appear discouraging. However, price increases show that demand for protein products remains strong. As the pandemic subsides and the company addresses its issues with the Justice Department, Tyson stock should eventually benefit.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.