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 has rebounded nearly 20% since then, its shares remain significantly below our fair value estimate, presenting attractive risk-adjusted upside along with a healthy dividend yield exceeding 3.7%. Tyson's adjusted EBITDA fell 62% from fiscal 2022 to fiscal 2023. As a no-moat food producer primarily reliant on raw meats for revenue, Tyson faces volatility in input costs and product pricing. 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 stock price suggests that these challenging conditions will persist. Meat markets are cyclical, and a return to a more normal 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 over 40% at the end of the second quarter of fiscal 2025 (ended March). Furthermore, we do not anticipate any structural changes in meat markets that would necessitate a permanent alteration in profitability. Therefore, we project 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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