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Bear of the Day: Tyson Foods (TSN)
Company Overview
Zacks Rank #5 (Strong Sell) stock Tyson Foods ((TSN - Free Report) ) is a multinational food company that operates in the meat and poultry industry. Headquartered in the United States, Tyson Foods is one of the largest producers of chicken, beef, and pork products globally. The company is involved in various aspects of the food supply chain, including the processing, production, and marketing of a wide range of protein-based products. Tyson Foods serves retail and food service customers, providing a diverse portfolio of brands and products.
Margin Pressures
In April, I wrote a “Bear of the Day” article on Tyson Foods discussing its margin pressures. Since then, little has changed. Tyson has been facing weak margins for quite some time due to increased cattle costs, unfavorable derivative impacts, and higher labor costs.
Spotty Earnings Surprise History
Earnings surprises account for one of the main driving forces behind a stock’s move. That’s bad news for Tyson. The company has missed earnings in four of the past five quarters.
Image Source: Zacks Investment Research
Debt Concerns
Tyson Food’s long-term debt of $8,863 million at the end of the third quarter of fiscal 2023 increased from $7,862 million in the second quarter. Margin pressure coupled with debt concerns is a fundamental recipe for disaster.
Image Source: Zacks Investment Research
Opportunity Cost
Because each investor has finite resources, a big part of being a winning investor is gravitating to what’s working and avoiding what’s not. For months, TSN has exhibited relative weakness. Relative weakness in the stock market refers to the underperformance of a particular stock versus the general market. When an asset displays relative weakness, its price tends to decline at a faster rate or rise more slowly than the overall market or its peers. Investors often analyze relative strength and weakness to make informed decisions about their portfolio allocation, identifying opportunities to capitalize on stronger-performing assets or to manage risk by avoiding or reducing exposure to weaker ones. Year-to-date TSN is down 22.4%, while the S&P 500 Index is up 18.4%. In other words, there are better places to allocate your money. Don’t fight the trend.
Image Source: Zacks Investment Research