Morningstar Rating

Stock Research and Analysis

by Liang Feng

Bulls Say

Tyson can identify further cost savings in its combination with Hillshire, by pursuing additional vertical integration that strengthens its cost advantage.
As ethanol consumption growth moderates and farmers increase crop capacity, a deceleration in the rate of commodity cost inflation and favorable pricing could allow Tyson to leverage its leaner supply chain to expand margins.
International sales have outpaced domestic growth, rising from 11% to 17% between 2005-13. Rising protein consumption internationally should yield more stable and favorable pricing. Read more 

Bears Say

Tyson will assume a significant amount of debt to finance the hefty premium it paid for Hillshire, and may struggle to repay this debt if it cannot achieve its targeted synergies, or experiences shrinking margins in its core meat-processing businesses.
Tyson's historical profitability and free cash flow generation have been volatile, as the firm’s profitability is extremely vulnerable to volatile input prices.
Meat processing generates razor-thin gross margins, and is capital-intensive, requiring significant investments in PP&E as well as inventory, giving Tyson little room for error. Read more 

Management

We are lowering Tyson’s stewardship rating to poor from standard, due to concerns over capital allocation after Tyson entered into a binding agreement to acquire Hillshire Brands. We agree that Hillshire is a valuable, complementary asset that fits   Read more 

Profile

Tyson Foods manufactures and distributes raw and value-added chicken (about 35% of sales in fiscal 2013), beef (40%), pork (15%), and prepared food (10%) products. Tyson   Read more 

3 M&A Takeaways  
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