Don't laugh. Tyson Foods (NYSE:TSN), the world's premier meat processor, bills itself as the "largest protein producer" in the world. The Atkins and South Beach diets are fogging up the lexicon.

The company's latest quarterly results were excellent. Sales were up 11%. Net income was up 46%. Tyson shares, after a more than 10% move today, sit near their 52-week high. Yet, with earnings guidance for 2004 at $0.90 to $1.20 a share, the stock trades at a reasonable 12 to 17 times forward earnings.

Rising margins coming
Mad cow disease (bovine spongiform encephalopathy, or BSE) recently knocked beef operating margins from a slim 1.9% to a negative 0.9%. Although Tyson sees a slight possibility of up to $30 million in future BSE-related charges, it also sees the potential for exports to Mexico in eight weeks and for the Japanese and Korean markets to reopen in three to six months. Any such resumption in exports will fatten margins.

Margins on chicken products rose from 0.7% to 6.1%. The outlook for chicken, with Avian Flu (AI) hurting major Asian exporters like Thailand, is strong -- but so are U.S. feed prices. Overall, Tyson sees operating margins holding and possibly rising to 7%.

In confirmation, rival chicken producer Pilgrim's Pride (NYSE:PPC) announced a 400% jump in earnings today. Of course, in addition to better margins, Pilgrim's benefited from the accretive-to-earnings acquisition of ConAgra's (NYSE:CAG) non-core chicken operations.

Interestingly, Tyson's better margins on pork -- up from 4.0% to 6.7% -- were not matched by those of the world's largest pork producer Smithfield Foods (NYSE:SFD), which actually declined last quarter. Nonetheless, Tyson expects its own margins on pork to remain strong.

Overall, Tyson's operating margins remained at around last year's 2.5%. Smithfield's margins, by comparison, were a more modest 1.5%, while Pilgrim's Pride, even after an earnings explosion, had margins of 3.0%.

Investors looking for higher margins have few large-cap choices in the group. Spam producer Hormel (NYSE:HRL) has excellent brands and sells at a reasonable 19 times earnings. As Paul Jaber recently pointed out, Hormel has the look of a potential value with a high-protein opportunity.

Sara Lee (NYSE:SLE), producer of Ball Park Franks and Jimmy Dean sausage, also manufactures shoe polish, underwear, and a variety of other products -- and high-carbohydrate bread products. That is hardly a combination for an investor looking for a pure opportunity in protein.

Tyson is growing, reducing debt, focusing on margins, and in the sweet spot of the high-protein diet craze. At today's prices, its merits look meaty and worth savoring.

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