Tyson Foods (NYSE: TSN) is trying hard to put in a bottom, and the bottom may be in. The Q3 results weren’t great and sparked a 7% decline in share prices that buyers met. This is not the first time buyers have bought the dip in Tyson. The company reported similarly weak results in Q2 and sparked the first dip in the bottom that is in play today. Insiders were buying in May; they may buy again given the value presented for long-term-oriented income investors.

Tyson is having a tough time now, but this is one of the planet's largest and best-run meat operations. The company is well-capitalized and can weather a downturn in margin and still pay its dividend. 

Tyson Has a Tough Quarter, Guides Weak 

Tyson had a tough quarter due in large part to pricing declines for meat and poultry. The company reported $13.14 billion in net revenue, down 2.7% compared to last year, and missed the consensus by 360 bps.

The miss is driven by large declines in pricing for pork and chicken, which also resulted in margin weakness. Volume was up by 0.3% across the system due to strength in Chicken and International markets offset by declines in beef, pork, and prepared foods. 

The average price received declined by only 2.6%, but the declines occurred across a bulk of the business to offset strength in Beef and International markets. The takeaway is that diversification is sustaining top-line results, but those results are impaired by pricing.

The guidance suggests the headwinds will persist, but there are signs that Tyson will be able to recover margin over time. Among them is Morningstar. Morningstar called out the stock as a value play trading well below their $85 target with full margin recovery expected by 2027. 

The FQ3 margin news is not good. The company’s GAAP and adjusted margins contracted significantly compared to last year resulting in a GAAP loss and adjusted EPS below consensus.

Impairment charges mitigate the GAAP loss and more than offset the weakness but the adjusted $0.15 is still well below target. The adjusted EPS missed by $0.11 or nearly 4200 basis points leading management to update its guidance.

Execs expect to see revenue in a range that tightly brackets the consensus but expect margin weakness to persist until the end of the fiscal year. 

Tyson’s Value Is In The Eye Of The Beholder 

Tyson is no beauty trading at over 30X its 2023 earnings, but some offsetting factors exist. The 1st is that margin recovery is expected to begin soon and will drive results and a better valuation over time.

The 2nd is that the stock pays a healthy 3.4% dividend and can continue increasing the payout annually as it has for the last decade.

The company is paying more than 100% of the 2023 earnings estimate. Still, it has the capital resources to sustain itself for several years, and earnings are expected to improve significantly as soon as F2024. In this scenario, the pace of increases may not be grand and may even cease, but the base payment appears safe.

The next declaration is due within days of the earnings release; if that is in line with expectations, the stock may be able to rebound from the post-release lows. 

The price action is suggestive. The market plunged following the Q3 release, but the bottom appears solid at critical levels. Assuming the market can sustain support at this level, the stock should be able to rebound and enter a trading range.

The first hurdle for the price action will be at the 150-day moving average near $57. If that can be crossed, the stock may move up to $62.50. If not and shares fall below critical support, a move to $45 or lower is possible.