Tyson Foods Inc. is poised to extend a recent upswing in its stock on strong export demand for beef and pork and higher chicken prices as poultry producers cut production, BB&T Capital Markets agribusiness analyst Heather Jones said.
It’s “very likely” Tyson lowers chicken production by 5 percent to 6 percent in coming weeks amid a broader poultry industry effort to trim excess supplies and boost sagging prices, Jones said in an Aug. 15 report. Also, robust demand from China and other foreign buyers is bolstering Tyson’s beef and pork businesses, Jones said.
Tyson is “particularly well positioned to benefit from burgeoning emerging market protein demand, as well as favorable red meat fundamentals domestically,” Jones wrote. “In addition, we are more comfortable with the outlook for its chicken business, as it acts aggressively to optimize results across its entire portfolio.”
In early afternoon trading Aug. 15, shares of Springdale, Ark.-based Tyson rose 45 cents, or 2.6 percent, to $17.61, up 8 percent from an eight-month closing low on Aug. 5. The stock is up 2.3 percent this year. Jones has a “buy” rating on Tyson shares, and said the stock may rise to $23 over the next 12 months.
Like many beef and pork producers, Tyson, the largest U.S. meat processor, is benefitting from tight meat supplies and an export boom.
U.S pork exports during the first six months of the year rose 14 percent from the same period in 2010, to more than 1.08 million metric tons, according to the U.S. Meat Export Federation. China’s pork purchases, at 122,293 metric tons, were up nearly eight-fold from the first half of 2010.
Pork carcass cutout values, a wholesale market benchmark, rose to a record above $1.10 a pound last week, according to the U.S. Department of Agriculture.
But Tyson’s profit came under pressure from weakness in its chicken business. In the quarter ended July 2, Tyson posted net income of $196 million, down 21 percent from $248 million a year earlier, the company said Aug. 8.
Tyson’s diversified business should help the company weather a “dismal” chicken market, Jones said. Industrywide, chicken producers are currently losing about 7 cents on every pound produced, though Tyson’s losses are closer to 2 cents, Jones said.
“Encouragingly, supply cuts are beginning to materialize” and bird weight gains are slowing, Jones said. U.S. chicken production during the first week of August was down about 3 percent, she said.
Tyson is also being squeezed by soaring feed costs after corn prices rallied to all-time highs in recent months. Tyson is lowering the weights of some of its largest chickens, which weigh as much as eight pounds, because of high corn prices, the company said last week, according to Bloomberg News.
While Jones expects Tyson’s beef business to outperform in coming months, “results could come down somewhat in 2012, particularly the second half, due to the likelihood of much tighter fed cattle supplies,” she said.
Tyson is the biggest U.S. poultry producer, with capacity to process 46 million chickens a week, and is also one of the nation’s biggest beef and pork processors.