From the beginning of 2022 to late October 2023, Tyson Foods’ shares declined nearly 50%, underperforming the Morningstar US Market Index (down 5%), as well as protein-centric peers Pilgrim’s Pride (down 7%) and Hormel (down 33%). Although Tyson's shares have rebounded by more than 30% since then, they remain significantly below our fair value estimate, presenting attractive risk-adjusted upside potential along with a healthy dividend yield exceeding 3%. Tyson's adjusted EBITDA fell by 62% from fiscal 2022 to fiscal 2023. As a no-moat food producer primarily reliant on raw meats for revenue, Tyson is vulnerable to fluctuations in input costs and product prices. This has been particularly challenging recently due to rampant cost inflation and supply/demand issues in the beef market. Additionally, the recovery of the US cattle supply will take time. However, we believe the current share price suggests that these difficult conditions will persist. Meat markets are cyclical, and a return to a more normalized operating environment is all that is needed to support our valuation. The chicken market has already shown signs of recovery, with 12-month trailing adjusted EBITDA increasing by 59% at the end of fiscal first-quarter 2025 (ended December). Furthermore, we do not anticipate any structural changes in meat markets that would necessitate a permanent alteration in profitability. Consequently, we project nearly 2% top-line growth over the next five years, with adjusted operating margins recovering to our 2029 estimate of 6.9%, aligning with historical levels and improving from the fiscal 2024 estimate of approximately 3.4%.
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