How Is Tyson Foods Valued after Fiscal 2Q16 Earnings?
Tyson Foods’ Fiscal 2Q16 Earnings and Updated Guidance
What does a forward PE ratio mean?
In this article, we’ll use the forward PE (price-to-earnings) ratio to compare the valuation of Tyson Foods (TSN) with those of its peers in the meat industry. The forward PE ratio indicates how much an investor is willing to pay for a company’s EPS (earnings per share) for the next four quarters. It’s measured by dividing a company’s current price by its EPS estimates for the next four quarters.
Tyson Foods’ valuation decreased after earnings
In the above chart, you can see the forward PE ratios of Tyson Foods and its peers. Tyson Foods is trading at a PE ratio of 15.6x as of May 11. It fell by 1.4% after the results. The company raised its fiscal 2016 EPS guidance to $4.20–$4.30 due to its strong results this quarter and a positive outlook for fiscal 2016. Analysts estimate a 36% rise in Tyson’s earnings in fiscal 2016. However, it’s trading at a lower PE ratio than Hormel Foods. This is likely due to the fact that its revenue will likely fall 10% in fiscal 2016 due to declining beef, pork, and feed prices.
Hormel Foods (HRL) is trading at a higher forward PE ratio compared to peers. It’s trading at 24.7x as of May 11. Analysts expect Hormel Foods’ adjusted EPS to rise by 20% and revenue to rise by 3% in fiscal 2016.
Sanderson Farms (SAFM) is trading at a PE ratio of 11.6x. Sanderson Farms’ earnings are expected to fall 31% in fiscal 2016. Its revenue will likely decline by 1%. Weak exports and lower product prices could continue to impact Sanderson Farms’ fiscal 2016 results.
Pilgrim’s Pride (PPC) is trading at a PE ratio of 11.5x. Analysts expect Pilgrim’s Pride’s earnings to fall 15% in fiscal 2016 with no growth in its revenue. This justifies the lower PE ratio.
ETF exposure
To gain exposure to these stocks, you can invest in the First Trust Consumer Staples AlphaDEX Fund (FXG). FXG invests 13% of its portfolio in Hormel Foods, Tyson Foods, and Pilgrim’s Pride.
In the final part of this series, we’ll see how Tyson Foods’ stock is trading in comparison to its moving averages.
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