Tyson Foods (TSN -0.43%) is one of the biggest meat processing companies in the world.
The company, which owns brands like Jimmy Dean, Ball Park, Hillshire Farm, and Aidell's, is the world's second-largest processor of poultry, pork, and beef, and the global leader in poultry production.
As a stock, the company has treated long-term investors well. Dating back to its IPO in 1963, the stock has appreciated by 45,100%, meaning that $1,000 invested in the stock back then would be worth roughly $450,000 today. More recently, the stock's gains have been more modest. It's only doubled over the last decade, underperforming the S&P 500 due in part to a sell-off over the last year on lower pork and beef prices and competitive industry dynamics.
With Tyson Foods stock down, is it a buy right now? Let's take a look at the buy, sell, and hold cases for the food stock today.
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Buy Tyson Foods stock: The sell-off is an opportunity
Tyson is an industry leader, and while the company operates in a commoditized industry, its brands like the ones listed above have helped the company differentiate itself on supermarket shelves and with consumers.
The company's size also allows it to grow through acquisitions, including Williams Sausage Company in 2023, AdvancePierre Foods in 2017, and Hillshire Brands in 2014. The company even took a stake in Beyond Meat, giving it exposure to the plant-based meat sector.
While Tyson Foods stock sold off following its most recent earnings report due to lower prices in beef and pork, shares look cheap compared to its historical trading range. The stock is now trading at a trailing price-to-earnings ratio of just 12, and it offers a 3.8% dividend yield.
The company is now expecting near-flat operating margins in fiscal 2023 outside of its prepared food segment, but those headwinds seem to be priced into the stock.
Meanwhile, other meat processing stocks are down as well due to the challenging industry environment, setting up the company for a potential acquisition. Protein prices are cyclical and the stock should rebound once they improve.
Sell Tyson Foods stock: It's a mature industry
Meat processing is a slow-growth industry, and since Tyson is already one of the leaders, it will be difficult for the company to achieve significant revenue growth organically, meaning without acquisitions. For example, the U.S. Department of Agriculture (USDA) projects domestic production of beef to fall 4% this year, while it sess flat production of pork and an increase of 3% in the production of poultry.
Population growth is slowing in the developing world, and populations are even declining in countries in Europe and elsewhere, like Japan. Convincing people to buy more meat may also be difficult at a time of growing health concerns around animal products. Food intake is by its nature restricted as well, and there's a limit to how much meat individuals will buy.
The industry is competitive and subject to commodity pricing and broader shifts in the market, meaning Tyson doesn't have pricing power, or the ability to determine its margins.
Finally, the company is also at risk from innovation. In addition to plant-based meat providers who have mostly seen growth slow down, the USDA just granted approval to lab-grown meat companies for the first time. While that product is still in its very early stages, it could eventually replace live-animal meat as it avoids the ethical and environmental concerns around animal-based meat.
Hold Tyson Foods stock: Ride out the volatility
Tyson is a cyclical stock, and the best move for investors may be to simply hold through the current volatility in anticipation of a recovery in pricing. The pandemic-driven pop in protein prices driven by plant shutdowns has faded, and inflationary concerns have led some to trade down to lower-priced foods such as chicken.
However, the company is an industry leader, and it has a long track record of growing profits and expanding through acquisitions. Any significant threat to the meat industry, such as lab-grown protein, will take years to play out as well.
Finally, Tyson has grown its dividend steadily over the last decade -- it's up about 10 times in the last 10 years. While investors shouldn't expect that to repeat, the company seems committed to growing the payout, and its 3.8% yield is enough to give the stock some stability and please income investors.
What's the right move?
Tyson likely doesn't have the upside potential of a growth stock at this point, and even as profits are expected to fall significantly this year, there's a solid case to hold it as a value stock or dividend stock in your portfolio. I'd rate it a hold currently.
Shares are trading below five-year lows, making it cheap based on historical levels, and it has a strong competitive position and a good dividend. The stock should respond if beef and pork prices start to recover.
Still, there's no telling when that would happen, especially with the economy still potentially headed for a recession. It's a solid company with an uncertain near term. It's a stock worth holding if you already own it.
