This month's #1 momentum stock: Tyson Foods Inc.
Tyson Foods Inc. (TSN) recently ranked as the highestmomentum equity in the Rivkin Global Momentum strategy. TSN is a foodproduction company based in the United States with a market capitalization ofUS$24.72 billion, focusing on five main segments; chicken, beef, pork, preparedfoods and international.
It is unsurprising that TSN has captured the attention oftraders over the past twelve months, outperforming the benchmark S&P500index by 75.37% and the top performer out of a group of peers highlighted onthe first two charts below.
Figure 01. TSN S&P500 outperformance
Figure 02. TSN vs peers
TSN has been benefiting from the recent global oversupply ofcorn and soybeans keeping grain prices depressed, lowering feed costs acrossthe United States. In February, the company announced that while revenues dueto increased cattle heard were down 15.4% YoY to US$9.15 billion, operatingincome reached a record of US$776 million, up 38% from the same period one yearprior.
The 2014 agreement to purchase The Hillshire Brands Companyfor US$63 per share appears to be paying off with expected synergies of US$500million and US$700 million in fiscal years 2016 and 2017 respectively which isexpected to further increase margins. Operating income also increased to arecord 8.5% as costs of goods sold decreased nearly 20% to US$7.95 billion YoY.It is unsurprisingly then that earnings per share guidance has been updatedfrom US$3.50-US$3.65 to US$3.85-US$3.95 as lower costs have helped solidifymargins.
The board of directors have also approved an increase of 50million shares authorized for repurchase following some 6.4 million (US$300million) in repurchasing during the first quarter, as of April 4th2016 there were a total of 363,104,353 common shares outstanding.
As stated at the beginning of this piece, TSN ranked as thehighest momentum stock as of the end of March, meaning it was included in ourUS momentum portfolio from the 1st of April. For those unfamiliarwith our momentum strategy, it is a systematic equity strategy that maintainsprice exposure to the top momentum stocks, as measured over approximately theprior 6 and 12 months. The strategy has an annual compounded return of 16.64%and requires changes to the portfolio makeup only once a month. For thoseinterested in reading more about this strategy, including the back testedresults over the past 15 years, please click here.