Gotham Purchases New $45 Million Position In Tyson Foods. Should You?

in INVESTING IDEAS by

A 13F filing with the SEC revealed that Joel Greenblatt’s Gatham Asset Management entered into a new $45 million position in Tyson Foods, Inc (NYSE: TSN) during the fourth quarter. Investors may want to take a closer look at the company with the stock down -3.5% in the last 30 days.


Gotham Asset Management’s Latest Form 13F Filing

On February 14th, Joel Greenblatt’s firm Gotham Asset Management filed its quarterly Form 13F regulatory filing. I reviewed the filing to gain a glimpse into the firm’s large portfolio.

The Ideas section of finbox.io tracks top investors and trending investment themes. You can get the latest data on the trading activity discussed below at the Gotham Asset Management page. Here’s a list of the firm’s largest stock purchases determined by comparing the last two filings:

Gotham Asset Management 7 Largest Purchases
Ticker Name Purchased ($mil) % Of Portfolio
PCLN PRICELINE GRP INC $50.6 1.0%
ABT ABBOTT LABS $47.9 0.8%
TSN TYSON FOODS INC $44.6 0.7%
RCL ROYAL CARIBBEAN CRUISES LTD $42.8 0.7%
COL ROCKWELL COLLINS INC $42.1 0.7%
ADI ANALOG DEVICES INC $40.2 0.8%
KO COCA COLA CO $38.8 0.9%

 

The largest stock purchase for the quarter was The Priceline Group Inc. (Nasdaq: PCLN). Gotham Asset Management increased its position in the company by $50.6 million and the stock now represents 1.0% of the firm’s portfolio. The next largest stock purchase was Abbott Laboratories (NYSE: ABT). The investment manager increased its position in the company by $47.9 million with the stock now representing 0.8% of the firm’s portfolio. Gotham Asset Management already had existing positions in both of these companies.

The firm’s third largest stock purchase in Q4’17 was a new position: Tyson Foods, Inc. I took a closer look at the company to see what could have caught Mr. Greenblatt’s eye.


Tyson Foods’ Stock Price and Valuation

The company’s shares last traded at $76.09 as of Friday, up 17.2% in the last six months and up 214.5% in five years. However, the stock is down 1.8% over the last 90 days.

Tyson Foods, Inc Stock Price Chart - 5 years

Tyson Foods, Inc Stock Price Chart - 3 months

While the stock has consistently traded higher in the long-run, the recent slump could offer an entry point for value investors.

In addition, Tyson Foods appears to be trading at a discount to its intrinsic value. Finbox.io’s average fair value estimate of $106.12 implies 39.5% upside and is calculated from 7 valuation models as shown in the table below. Each analysis uses consensus Wall Street estimates for the projections when available.

Tyson Foods, Inc Valuation Detail
Analysis Model Fair Value Upside (Downside)
10-yr DCF EBITDA Exit $122.59 61.1%
5-yr DCF EBITDA Exit $122.26 60.7%
Peer EBITDA Multiples $100.79 32.5%
10-yr DCF Growth Exit $122.20 60.6%
5-yr DCF Growth Exit $121.76 60.0%
Dividend Discount Model (multi-stage) $108.62 42.8%
Earnings Power Value $44.65 -41.3%
Average $106.12 39.5%

 

Joel Greenblatt is best known for a very specific style of value investing termed: Magic Formula Investing. The company appears to have the fundamental characteristics that make it a fit within his magic formula.

However, it is important to note that these filings are due 45 days after the quarter end date. Therefore, Gotham Asset Management’s holdings above represent positions held as of December 31st and not necessarily reflective of the fund’s current stock holdings.

Before making an investment decision, here are a few items that should be considered before drawing a conclusion:

Valuation: what is Tyson Foods’ free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.

Efficiency Metrics: inventory turnover is a ratio that measures the number of times a company’s inventory is sold and replaced over the year. View Tyson Foods’ inventory turnover here.

Efficiency Metrics: is management becoming more or less efficient in creating value for the firm? Find out by analyzing the company’s return on invested capital ratio here.


Author: Andy Pai

Expertise: financial modeling, mergers & acquisitions

Andy is the lead reporter on 13F/13D filings and general investment management activity.

Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights:

  • Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores.
  • Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets.

Andy can be reached at andy@finbox.io.

As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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