TSN Earnings Show It’s Time For Value Stocks
$35 billion Tyson Foods (TSN) reported 4Q21 earnings Monday morning and their report shows that it’s time for value stocks. TSN’s Revenue grew 24% and Adjusted EPS 48% resulting in a 10% jump in the stock to all time highs. Even so, TSN stock is hardly expensive trading at about 10x my estimate for FY22 Adjusted EPS. The stock is going significantly higher IMO. (I own TSN indirectly via the Van Eck Agribusiness ETF (MOO)).
The key factor in TSN’s blowout quarter was that it increased prices to deal with meat price inflation. As you can see in the graphic above from their presentation, price added $2.1 billion to the quarter’s earnings offsetting a $1.6 billion hit to Cost of Goods Sold (COGS) due to inflation. My expectation is that more and more consumer staples companies will be following TSN’s lead in this regard and that their stocks will start to move higher when they do.
As you can see in Jeff Weniger’s chart above via Callum Thomas, growth has crushed value for 14 years. That’s why investors are so obsessed with tech stocks. However, the tide is turning IMO and it’s now time to rotate into value stocks with pricing power that can increase profitability in an inflationary environment.