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stock is falling early Tuesday, following a downgrade from Piper Sandler, which warns that higher input costs could hamper the protein producer.
Analyst Michael Lavery cut his rating on Tyson (ticker: TSN) stock to Neutral from Overweight, although he lifted his price target to $79 from $77. The move comes as he warns that the stock’s valuation “may not reflect near-term risks,” even as he likes the long-term outlook.
High on that list of risks is the cost of corn and soybean meal: Corn prices have soared 95% year over year, and a 60% increase puts soybean not far behind. Nor does he expect that there will be much in the way of near-term relief, given stronger demand from China, and supply squeezes in South America following recent drought conditions. Lavery estimates that feed costs will amount to a $335 million headwind in 2021.
Consumer-products companies across the board have been struggling with higher commodity costs to varying degrees, with many raising prices or altering packaging sizes to try to offset some of that impact.
That said, it’s not all bad news. Lavery expects that beef margins will help offset some pressure in other areas such as prepared foods and pork, and that that division will see strength through fiscal 2022—hence his price-target increase.
In addition, he writes that the longer-term picture looks bright, with global protein demand expected to climb 5% to 10% over the next five years and double in the next 30 years. That leads him to model for Tyson to grow earnings per share by 11% in fiscal 2022 and 2023.
Still, Lavery writes that “there are still risks and uncertainties from inflation pressures outside beef and the timing of a recovery in chicken, which could add downside risk to our estimates,” that higher input costs “could persist for some time.”
Tyson stock is down 2% to $77.22 in recent trading. The shares have jumped 22.3% year to date, and are up 31.2% in the latest 12 months.
Write to Teresa Rivas at teresa.rivas@barrons.com
