Shifting Consumer Preferences And Rising Costs Will Undermine Meat Demand

Key Takeaways

• Shifting consumer preferences toward plant-based proteins and slow innovation threaten Tyson's revenue growth and market share in core meat categories.
  
• Rising regulatory, input cost, and operational challenges increase costs and drive greater earnings volatility and margin pressure.
  
• Strong performance in branded and prepared foods, operational efficiency, innovation, and prudent capital management are driving growth and positioning the company for sustained profitability.

Catalysts

Operates as a food company worldwide.

• Accelerating consumer adoption of plant-based and alternative proteins, driven by concerns over health, environmental impact, and animal welfare, threatens to erode long-term demand for Tyson's core meat products and could cause structural declines in revenue as consumers shift preferences away from traditional animal proteins.
  
• Increasing regulatory scrutiny and governmental policy action related to greenhouse gas emissions and sustainability in global food supply could require major additional capital expenditures and operational investments for compliance, elevating long-term costs and putting persistent downward pressure on net margins.
  
• Continued operational disruptions-such as labor shortages, plant closures, and heightened risks from diseases like avian flu or New World screwworm-are likely to challenge Tyson's ability to sustain consistent production and could drive up costs or force temporary shutdowns, resulting in earnings volatility and margin compression over time.
  
• Slower progress and weaker competitiveness in the plant-based and value-added protein segments compared to more innovative peers may lead to revenue stagnation and loss of market share, particularly as consumer trends increasingly favor alternatives and competitors scale up faster in these categories.
  
• Unrelenting input cost inflation, especially for feed grain, energy, and labor, combined with rising risks from global trade barriers and livestock disease outbreaks, threatens to erode profitability across Tyson's protein segments, resulting in lower net margins and increased earnings instability for the foreseeable future.

Tyson Foods Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Tyson Foods compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Tyson Foods's revenue will grow by 1.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.4% today to 3.8% in 3 years time.
• The bearish analysts expect earnings to reach $2.2 billion (and earnings per share of $6.13) by about August 2028, up from $784.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.0x on those 2028 earnings, down from 26.1x today. This future PE is lower than the current PE for the US Food industry at 21.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Tyson Foods Future Earnings Per Share Growth

Risks

• The company is experiencing robust growth in its value-added and branded products, particularly in the Prepared Foods and Chicken segments, with innovation and expanded distribution driving higher sales and improved operating margins, which supports the potential for long-term revenue and earnings expansion.
  
• Tyson's operational execution initiatives and focus on efficiency are translating into record performance in Prepared Foods and Chicken, unlocking cost savings and fortifying margins, thereby enhancing the company's overall net margin and operational resiliency.
  
• The ongoing investment in innovation, including a strong pipeline of new products, and increased marketing support are fueling market share gains in key categories like snacking, frozen poultry, and breakfast products, which bode well for sustained revenue growth.
  
• As cattle herd rebuilding is anticipated over the next several years, the Beef segment is positioned for recovery; management expects industry supply constraints to ease around 2028, potentially supporting a turnaround in beef profitability and reducing earnings headwinds.
  
• The company's healthy balance sheet, improved free cash flow, lowered leverage, and disciplined capital allocation-including the resumption of share repurchases-strengthen its ability to return capital to shareholders and pursue strategic growth, supporting long-term earnings per share and shareholder value.

Valuation

• The assumed bearish price target for Tyson Foods is $55.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tyson Foods's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $55.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $56.5 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $57.42, the bearish analyst price target of $55.0 is 4.4% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.