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Why Tyson Foods (TSN) Shares Are Down 4% Today - Stocks In The News

The hard-fought battle for Hillshire Brands ( HSH ) appears to finally be over. Tyson Foods ( TSN ) has easily crushed its competitor, Pilgrim's Pride ( PPC ) , in its offer for Hillshire, pledging roughly $8.55 billion, or $63/share, for the company.

However, now that the smoke has cleared over the deal, many are questioning the price paid by TSN for Hillshire. Some are speculating that TSN overpaid for HSH, and that a far better price could have been reached that still would have beaten out PPC.

In fact, Tyson Foods suffered a downgrade from Credit Suisse due to the deal terms, as the company moved its rating from 'Neutral' to 'Underperform' on TSN stock. Credit Suisse also said that it is concerned that Tyson may have to issue more shares in order to complete the deal, while Credit Suisse also reduced its price target from $40 to $35 for Tyson stock.

If that wasn't enough, the Wall Street Journal also reported a similarly troubling situation, with reports that Tyson may have overbid by roughly $1.5 billion. According to the article , TSN could have won with a bid of about $57.50, $7.05 billion, since PPC held strong with its bid of $55, and it was only necessary to beat out Pilgrim's Pride by $2.50 per share.

Obviously, it is easy to chastise TSN knowing what we know now, but the fact remains that Tyson could have reduced its offer price, even to a (roughly) middle-of-the-road $60/share and easily have beaten PPC for Hillshire.

Impact

Thanks to these revelations about the purchase price and concerns over how TSN will pay for this huge deal, shares of Tyson Foods faced trouble in Tuesday trading. Shares of TSN were down about 5% in early trading, but were trading lower by about 4% in late-afternoon trading on heavy volume.

Meanwhile, PPC was trading higher by roughly 1.7% on the day, though the stock is down roughly 1% in the past five days. HSH was roughly flat on the day, trading around $62/share, just a bit under the Tyson Foods' offer price.

Rankings

In terms of the Zacks Ranks for the Food industry, they have been almost universally positive. In fact, the Food-Meat Producers Industry is ranked in the top 1% of all industries surveyed, and actually in the top five of 250 overall.

PPC has a top Zacks Rank #1 (Strong Buy) right now, and it may actually be a blessing it didn't win Hillshire, given what has happened to Tyson in the interim, and how some analysts think this deal will play out in the coming months.

In fact, Tyson Foods has a Zacks Rank #3 (hold) down from a Zacks Rank #1 just a week ago. The stock is also down quite a bit in recent trading, as shares have lost about 14% in the past five days, suggesting that many investors don't like the acquisition, or at least the price paid for the deal.

Bottom Line

The meat producers industry has a very impressive Zacks Rank, but this hasn't trickled into a strong performance for TSN lately. Instead, shares of the company have been sunk by revelations that they probably overpaid for Hillshire Brands.

Shares of TSN are down again today on the news, putting the stock into near bear territory at this point. While the company might be able to turn things around and capture some synergies from the deal, it appears that at least in the short term, there are better ways to play the space while investors digest what this deal truly means for Tyson and its place in the industry.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

TYSON FOODS A (TSN): Free Stock Analysis Report

HILLSHIRE BRAND (HSH): Free Stock Analysis Report

PILGRIMS PRIDE (PPC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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