Commodity Headwinds and Softer Sales Hamper Tyson's Profitability in Q1, but We Still See Value

We think the combination of oversupply and external factors (higher protein costs and availability) worked against no-moat Tyson in its first quarter, plaguing margins. In fact, gross and operating margin sank 830 and 770 basis points, respectively, to 7.3% and 3.4%. Despite such disappointing results, we believe Tyson’s ongoing productivity initiatives (targeting $300 million-$400 million in savings in fiscal 2023, on top of $700 million achieved in fiscal 2022) should enable it to weather the inherent volatility in the protein industry while affording the fuel to invest in labor and automation longer term. While we intend to adjust our near-term forecast based on its recent marks, which should take our $106 fair value estimate down by a low-single-digit percentage, shares still look attractive at a roughly 40% discount to our intrinsic valuation, even after a 5% pullback on the print.