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Tyson Foods, Inc. (TSN): Are You a Chicken Investor?

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Have you been eating more chicken lately? If so, you’re going along with a U.S. trend. More people are ditching red meat due to potentially adverse health effects and consuming more chicken. Of course, anything in moderation is okay, but that’s a story for another time.

At least the Chik-fil-A cows are on track for accomplishing their goal. More importantly, several companies stand to benefit from this recent trend. One of these companies is Tyson Foods, Inc. (NYSE:TSN).

Tyson Foods, Inc. (NYSE:TSN)

Strong market share

Below is the market share breakdown for Tyson:

  • Chicken: 22%
  • Beef: 21%
  • Pork: 17%

These numbers might not indicate market domination, but they’re very strong. Tyson Foods, Inc. (NYSE:TSN)’s diversification also allows it to better manage cost volatility.

The United States Department of Agriculture expects this year’s harvest to be the best in 77 years. Tyson is already enjoying the benefits of a reduction in corn prices. This is important because corn is used as the primary source of food for chickens.

Tyson Foods, Inc. (NYSE:TSN) also recently acquired Circle Foods and Don Julio Foods in order to increase its presence in the processed-Mexican-food space. These look to be wise decisions as Tyson is simply going along with industry trends — demand for processed Mexican food has significantly increased in the United States over the past several years.

Tyson Foods, Inc. (NYSE:TSN)Tyson Foods, Inc. (NYSE:TSN) is going along with another trend as well, which is to increase exposure in Mexico, India, and China. The latter two should come as no surprise since they’re the two most populated countries in the world.  As far as Mexico is concerned, in case you missed it, Mexico has overtaken the United States as the most overweight country in the world. Increasing exposure here is logical.

Tyson Foods, Inc. (NYSE:TSN) management expects top-line growth of 3% to 4% and international growth of 12% to 16% in 2013. These are impressive expectations, but they’re not as impressive as Tyson’s goal of increasing the bottom line by 8.5% to 10% over the long haul, especially considering earnings have declined the past two years.

Insider hints

In a normal stock market environment, insider purchases wouldn’t mean much unless they were significant. However, in the current stock market environment, where the vast majority of insiders are selling, even the smallest purchase can be an indicator.

Several Tyson Foods, Inc. (NYSE:TSN) insiders purchased stock this year. Though these weren’t significant purchases, insiders only purchase for one reason — they have reason to believe the stock will appreciate. As usual, these insiders have made money on their stock purchases, (and none of them have sold any stock yet), which is also bullish.

While these insider purchases were important to note, they were nothing compared to the insider purchases made at Pilgrim’s Pride Corporation (NASDAQ:PPC) late last year. Those purchases were made at $6, and the stock now trades at $15.39.

That’s one heck of a run. While it’s highly likely that the best part of the move has already been completed, none of these insiders have sold their shares yet, which once again indicates more upside potential.

Tyson vs. peers

Tyson Foods, Inc. (NYSE:TSN)’s revenue increased the past three years, but growth has slowed. Earnings have also declined over the past two years. On the other hand, Tyson has remained profitable since 2010 and its debt management is superb. Another benefit here is that dividend payments are likely to stay intact. Tyson only yields 0.80%, but it’s better than nothing.

The aforementioned Pilgrim’s Pride Corporation (NASDAQ:PPC) suffered revenue declines from 2008-2010, but revenue growth has been strong since. However, earnings have been inconsistent on an annual basis. That said, these numbers don’t matter much.

When insiders are buying at more than one company within an industry, it indicates that the industry is likely to perform well in the near future. Food cost inflation is reducing for every company in the industry, not just Tyson Foods, Inc. (NYSE:TSN), and demand is strong.

Smithfield Foods, Inc. (NYSE:SFD) has seen consistent revenue improvements over the past three years, but once again, top-line growth has slowed. Smithfield delivered profits over the past three years, but that trend is also down.

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