Morningstar Rating

Stock Research and Analysis

by Erin Lash, CFA

Bulls Say

Tyson can identify further cost savings in its combination with Hillshire, by pursuing vertical integration that strengthens its cost advantage.
Dramatic growth in crop yields will contribute to low commodity cost inflation and favorable pricing that will allow Tyson to leverage its leaner supply chain to expand margins.
International sales have outpaced domestic growth, and rising protein consumption internationally (from secular wage growth) should yield more stable and favorable pricing. Read more 

Bears Say

Tyson assumed 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 profits and free cash flow generation have been volatile, since the firm is extremely vulnerable to volatile input prices.
Tyson has little room for error, since meat processing generates razor-thin gross margins and is capital-intensive, requiring significant investments in PP&E as well as inventory. Read more 

Management

We are maintaining Tyson's Poor stewardship rating, since we are concerned about capital allocation after Tyson entered into a binding agreement to acquire Hillshire Brands. We agree that Hillshire is a valuable, complementary asset that fits nicely   Read more 

Profile

Tyson Foods manufactures and distributes raw and value-added chicken (about 35% of sales in fiscal 2014), beef (40%), pork (15%), and prepared food (10%) products. Tyson   Read more 

3 M&A Takeaways  
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