Tyson Foods Inc. (NYSE:TSN), the biggest meat processor in the United States, cut its 2007 earnings forecast quite significantly on higher costs and a disruption in beef exports to South Korea. TSN shares are trading lower by 12% today on very heavy volume following this earnings forecast cut. The company had previously guided estimates for 2007 earnings to be in the 82 to 92 cent range, but now the company is calling for 72 to 80 cents of profit per share for the entire year.
Richard Bond, CEO of Tyson Foods, said that higher than expected live cattle costs and a disruption in South Korean beef trade are largely to blame for this misstep. He said that the company is currently implementing a cost cutting program which will help Tyson realize $250 million in fiscal 2007. The company has also been able to raise prices in its chicken products. The raise in price has been offset thus far by lower sales volumes, but Tyson believes these sales will come back in the future.
After today's 12% drop in its shares, does Tyson Foods appear to be a bargain for investors? Quite simply, the answer is a resounding no. The company now trades at around 30 times earnings estimates for 2007, while growth for the next five years is expected to be only 8%. This would give the company a PEG ratio of 3.75, which is far from attractive.
The company must implement a turnaround plan without leveraging itself too much more since the company already has a very high debt/equity ratio of .636. Use of more debt as leverage could be an ominous sign at Tyson.
Things are not going very well at Tyson Foods right now, and though the company is planning a cost cutting program, the stock appears very overvalued right now. I would stay far away from this stock.
Comment Preview