The Henry Fund Henry B. Tippie College of Business Willow Miller [[email protected]]

TYSON FOODS, INC. (TSN) November 19, 2020 Consumer Staples – Processing Stock Rating BUY Investment Thesis Target Price $75 Inc. (TSN) is a BUY because we see an upside of 18.8% between Henry Fund DCF $113 our target price ($76) and the market price ($64). Tyson Foods, Inc. is a meat Henry Fund DDM $108 processing company with 20% exposure to packaged food. The company Relative Multiple $75 predominantly operates in a mature industry, meat processing, with little Price Data projected growth. We think that Tyson is taking steps to achieve growth past Current Price $64 the industry average (0.6%)4 by focusing on growth by acquisition and growth by increasing international exposure. We believe the later of the two growth 52wk Range $42 - $94 strategies is critical, as emerging markets have increasing disposable income Consensus 1yr Target $76 and meat consumption, which is an attractive environment for Tyson.9 Overall, Key Statistics we recommend a BUY on Tyson, but we do acknowledge there are less Market Cap (B) $22778 attractive factors at play (such as trade wars and the global pandemic) which Shares Outstanding (M) 333 challenge long term growth of a company with low margins. Institutional Ownership 82.4% Beta 0.76 Drivers of Thesis Dividend Yield 1.8% • Market price is temporarily compressed due to the near term external Est. 5yr Growth CAGR 2.23% shock of the COVID-19 pandemic Price/Earnings (TTM) 11.8 • Tyson’s projected growth (2.14% per annum) outpaces the projected Price/Earnings (FY1) 12.4 industry average annual growth, 0.6%4 • Tyson is growing by strategic acquisitions ($7.6 billion over the past five EV/EBITDA (TTM) 8.7 years) and management has focused on segments with higher margins than EV/EBITDA (FY1) 8.5 meat processing, like packaged foods, (with 10%+ net margins1) and Profitability international markets, where meat consumption is increasing9 Operating Margin 8.9% Net Margin 5.0% Risks to Thesis Return on Assets (TTM) 6.3% • Tyson operates in a low margin industry that is very sensitive to external Return on Equity (TTM) 14.5% shocks, such as global pandemics and trade wars, for example • Chicken prices should decrease following an investigation by the TSN Industry Sector Department of Justice over chicken price fixing8 30 Source: Bloomberg and FactSet 1 • The company has 86% exposure the United States, which is a geographic 25 27.6 4 market growing very slowly in population (0.6% ), with less meat 20 21.9 consumption growth compared to other international markets 19.9 15 15.0 Earnings Estimates 10 14.5 11.8 9.6 Year 2017 2018 2019 2020E 2021E 2022E 5 9.0 8.7 EPS $4.85 $8.28 $5.57 $5.86 $5.59 $6.25 0 HF est. $4.85 $8.28 $5.57 $3.99 $5.56 $6.01 P/E ROE EV/EBITDA Growth - 71.72% -32.73% -28.37% 39.35% 8.09% 12 Month Performance Company Description TSN S&P 500 50% Tyson Foods, Inc. was founded by John W. Tyson in 1935 and is headquartered in 30% Springdale, AR. Tyson Foods is a food 10% company with operations that consist of -10% breeding stock, growing feed, transporting -30% livestock, processing meat, producing -50% packaged foods, and distributing final -70% products. The company operates through the following segments: Chicken, Beef, Pork, -90% Prepared Foods, and international/other. N D J F M A M J J A S O

Important disclosures appear on the last page of this report.

COMPANY DESCRIPTION Beef Forecast Tyson operates in size segments: beef, pork, chicken, 25000 1 prepared foods, International and other : 20000 15000 2019 Tyson Segment Revenue 10000 Other 5000 International -3% 0 3%

Prepared Foods 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 19% Beef ($M) Revenue Segment Years 35%

Chicken Source: Model 29% Pork We forecast a 10 year CAGR of 2.41% for the segment. 11%

Beef Pork Chicken Pork Segment: Prepared Foods International Other The second segment that is performing well during the Source: 2019 Tyson Foods, Inc. Annual Report COVID-19 pandemic, due to price increases is pork. We use the guidance Tyson provided for FY2021, which is based on Tyson’s largest segments includes vertically integrated USDA projections (1%) for domestic pork production.2 We meat production segments: beef, chicken, and pork. Tyson assume that a COVID-19 vaccine will be distributed in also has segments in packaged foods and FY2021, so like the beef segment, we expect the pork international/other. We forecast all these segments to segment to return to pre-COVID-19 sales growth levels grow annually 2.14% over the next 10 years. (0.31%) after FY2021. Beef Segment: Pork Forecast The beef segment is one of the two segments that Tyson management cited in their 3Q report that has performed 5400 well during the COVID-19 pandemic.2 Management cites 5200 increased prices and higher margins for the 5000 outperformance of this segment. Since Tyson does not 4800 provide sale volumes for each segment, we were unable to 4600 price in price increases into our model, unfortunately. We opted to use the guidance Tyson provided for FY2021, 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 which is based on USDA projections (3%) for domestic beef ($M) Revenue Segment Years production. We assume that a COVID-19 vaccine will be distributed in FY2021, so we believe that the beef segment Source: Model will return to pre-COVID-19 sales growth levels (3.23%) after FY2021. We forecast a 10 year CAGR of 0.23% for the segment.

Chicken Segment:

Management cites that the chicken segment as suffered due to lower sales volume and due to weaker chicken pricing as a result of market conditions.2 In terms of costs, this segment suffered due to increased chicken feed prices (+$50 million) and restructuring costs (+$21 million). To forecast this segment, we use the guidance Tyson

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provided for FY2021, which is based on USDA projections (0%) for chicken production. Tyson appears to be involved Packaged Foods Forecast in a chicken pricing collusion activity, so we expect the 15000 price of chicken to be lower in the future since Tyson was caught engaging in illicit activities.8 As a result, the 10000 historical 3 year sales growth (6.39%) is unlikely moving 5000 forward. As a result, we approximated the anticipated price decrease based on current US inflation (1.2%)10 past 0 FY2021. 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Segment Revenue ($M) Revenue Segment Years Chicken Forecast 15000 Source: Model 14000 13000 We forecast a 10 year CAGR of 3.59% for the segment. 12000 11000 International Segment: 10000 The international segment includes Tyson’s foreign 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 operations in Australia, China, South Korea, Malaysia, Segment Revenue ($M) Revenue Segment Years Mexico, the Netherlands, Thailand and the United Kingdom, third-party merger and integration costs and Source: Model corporate overhead related to Tyson New Ventures, LLC.1

We forecast a 10 year CAGR of 0.66% for the segment. Management gave essentially no guidance on this segment, stating that it should perform better next year. Prepared Foods Segment: To forecast this segment, we use forecast data from the Organization for Economic Co-operation and Tyson’s packaged food segment makes up 20% of revenue Development (OECD) and the Food and Agriculture as of 2019. Tyson’s prepared food segment is suffering due Organization’s (FAO) Outlook 2019-2028 report.9 We base to the COVID-19 pandemic. This segment supplies international revenue growth on consumption projections restaurants as well as grocery stores, so the reduction in in developing countries, which factor in China and Mexico. the foodservice channel related sales was partially offset The projections start at 1.5% and decease to 0.36% over a by increased demand in the grocery store channel.2 This nine year period. For the last year, we assume it is the segment was also impacted by increased operating costs, same as the forecasted year nine projection. including a $135 million increase in net raw material costs due to the pandemic. Something we do not price in in this segment is the company’s November (2020) announcement, which Tyson management provides vague guidance for this released plans to expand internationally.11 Management segment with management stating that it will continue to cites that these plans will announced plans to build new be responsive to changes in consumer behavior as a result production facilities in China and Thailand, and expand its of the impacts of COVID-19 pandemic. Consequently, we facility in the Netherlands, thereby adding over 100,000 essentially had no guidance from management to forecast metric tons of fully cooked poultry capacity to overall this segment. For FY2020, we use a summation of the operations. Once these plans are realized, we expect an quarters and a projected fourth quarter based on 3rd increase in operation revenue in the international quarter sales. And past FY2021, we assume that a COVID- segment. 19 vaccine will be distributed in FY2021, so we believe that the prepared food segment will return to pre-COVID-19 sales growth levels (2.04%) after FY2021.

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marketing, advertising, and promotion expenses; International Segment Forecast restructuring expenses; and other operating related 1 2000 expenses. In 2019, this account makes up 5.2% of sales. 1500 We forecasted this account as constant percentage of sales (5.05%) since the account has been both growing and 1000 decreasing over the past five years, without a distinct 500 negative or positive trend. 0

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Cost of Sales Forecast Segment Revenue ($M) Revenue Segment Years 50000 40000 Source: Model 30000 20000 We forecast a 10 year CAGR of 3.47% for the segment. 10000 Expense Expense ($M) 0 Cost Structure Analysis 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Tyson reports two main cost accounts: cost of sales and Years SG&A. Cost of sales include livestock costs, raw material and other input costs, freight costs, depreciation expense, Source: Model and amortization expense.1 In 2019, this account makes up 88.2% of sales. We forecasted this account as percentage We forecast a 10 year CAGR of 2.22% for the expense of sales, spiking in FY2020 (-87.5%)+, according to account. guidance and then returning to historical levels (-85.57%). We forecast years past FY2020, based on growing Overall, Tyson accrues significant expenses. In 2019, 93.4% historical levels (0.09%). That is over the interim years, we of revenue was eaten up by the two primary expense project the account to grow from -85.76% as a percentage accounts. So, Tyson operates in a low margin industry. We of sales to -86.23%. believe this has contributed to Tyson’s rollup strategy to achieve economies of scale (at least initially), and vertical SG&A Forecast 3000 2500 2000 1500 1000 500 Expense Expense ($M) 0

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Years

Source: Model

We forecast a 10 year CAGR of 1.89% for the expense account.

The second main expense account for Tyson is selling, general, and administration expense. This account includes employee expenses; technology expenses;

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integration to keep operations in-house and theoretically the Netherlands and one processing facility in the United cheaper. Kingdom to Tysons international exposure.14

Company Analysis 2020 - American Proteins Inc. – $850 million: American Proteins Inc. specializes in poultry rendering and blending Tyson operates in a low margin industry, so it uses vertical assets. The acquisition adds to Tyson’s ESG initiatives, as integration (all operations in-house) with two main the company looks to recycle more animal products to use strategies to grow: acquisitions and international markets. in feed and pet food.15

Roll up strategy: With each acquisition, Tyson stock price increased. Since 2015, Tyson has made four large acquisitions: AdvancePierre, Keystone Foods the Thai and European Tyson Stock Price Chart operations of BRF S.A., and American Proteins Inc.7

Tyson’s Acquisitions Since 2015

Source: FactSet

Prior to the COVID-19 pandemic, Tyson’s stock went from $44 in 2015 to $91 in 2020. In the short term, however, the stock price has compressed to $62 as of November 2020. Overall, we believe that each acquisition adds to Tyson’s operations. The company has focused on investing in areas Source: Bloomberg with the most opportunities for growth, like packaged foods and international markets. We believe that Tyson’s acquisitions were value added because each acquisition added to higher margin and Debt Maturity Analysis higher growth potential segments: Management cites that based on current expectations, 2017 – AdvancePierre - $4.2 billion: AdvancePierre is a liquidity and capital resources will be sufficient to operate leading national producer of ready-to-eat lunch and dinner Tyson during the pandemic.2 As a result, we do not believe 12 sandwiches, sandwich components and snacks. that Tyson will re-finance its debt.

2018 – Keystone Foods – $2.2 billion: Keystone Foods is an Five-Year Debt Maturity Schedule international company that supplies McDonalds chicken Fiscal Year Payment ($mil) nuggets. Besides increasing Tyson’s processed foods 2020 $6514 exposure, the acquisition also included eight plants and 2021 $2038 centers in international established and emerging 2022 $2039 markets, which include: China, South Korea, Malaysia, 2023 $1369 13 Thailand and Australia. 2024 $1369 Thereafter $10671 2019 - BRF S.A. Segments - $340 million: BRF S.A. is a meat Total $24645 processing company. This acquisition added four Source: 2019 Tyson Foods, Inc. Annual Report processing facilities in Thailand, one processing facility in We would only be concerned of debt refinancing if a third or fourth wave of the COVID-19 causes plants to temporarily close. With that being said, we anticipate a

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widely distributed vaccine in FY2021 or FY2022, so we guidance, but updated with Q4 segment revenue and costs think the company will be able to service its future debt since Tyson announced earnings November 2020. since its revenues will be less adversely impacted in the near future. COVID-19 Impact ESG Analysis Due to the COVID-19 pandemic Tyson experienced decrease sale volumes, especially in the prepared foods Mergent by FTSE Russell ESG scale places Tyson at a 3.7 segment, which was offset by an increase prices for meat. rating, which is 76 percentile and FactSet places Tyson at This combination resulted in segment revenue increasing a 35.4 rating, which is a 74 percentile. Tyson’s rating are 5% year over year. However, this increase in revenue was high despite predatory contracts with farmers16 to keep offset by a significant increase in expenses. Tyson’s costs labor costs low and anti-trust breaches to keep meat increased by $540 million due to COVID-19 expenses. prices high.17 Since Tyson will not be subject to criminal Additionally, the company’s payroll expense increased due actions by cooperating with the department of Justice, the to $114 million in bonuses paid out to front line workers.3 company will not face litigation expenses. As a result, we Until the pandemic is over, we anticipate continued do not think that the market is pricing in Tyson’s ESG COVID-19 expenses. We price this into our model. Lastly, behavior since it is not adversely impacting the share price. we expand out analysis on COVID-19’s impact on Tyson in the “Industry Trends” section. RECENT DEVELOPMENTS INDUSTRY TRENDS Q3 Earnings COVID-19 Related Supply Chain Breakdowns Tyson released third quarter earnings in August (2020). The company beat EPS consensus ($0.94) and reported The COVID-19 pandemic highlighted the vulnerability of EPS at $1.40 for the quarter, down $0.07 from last year.18 vertical integration used by the meat processing industry. Due to the uncertainty of the COVID-19 pandemic’s future Meat processing requires close contact with a large impact on operations, management provides little amount of individuals, this makes meat packing plants guidance. We include the following Q3 guidance into our prime candidates for COVID-19 outbreaks. During the first model2: wave of the pandemic, Tyson’s Chairman of the Board of Directors released a statement that the supply chain was • No revenue guidance due to COVID-19 pandemic breaking due to plant closures. He warned that the but vague segment guidance provided with USDA closures would result in an oversupply of livestock and a projections. meat shortage, since temporary plant closures would lead • Beef – USDA projects domestic production will to the inability to process meat so excess livestock would increase approximately 3% in fiscal 2021. be euthanized and meat shortages would be exasperated • Pork – USDA projects domestic production will by increased at-home consumption.19 increase approximately 1% in fiscal 2021 • Chicken – USDA projects a relatively flat to slightly Besides the supply chain being adversely affected by 100 increased outlook for chicken production in fiscal temporary closures meat processing employees were 2021 adversely effected to by the pandemic too. According to • Prepared Foods – no guidance , by September 2020 at least 42,534 • International/Other – No guidance workers at meatpacking plants had contracted the 20 • Capital Expenditures – In line with 2019 ($1.2 coronavirus, while at least 203 had died. All main industry billion) players, Tyson, JBS, Smithfield, Cargill, Sanderson Farms • Increased costs due to the COVID-19 pandemic. were impacted by COVID-19 in over 500 plants.

Overall, we believe that Tyson management was vague We think the industry experienced so much issues as a with guidance given the uncertainty of the COVID-19 result of COVID-19 due to vertical integration, since the pandemic. Additionally, we built our model with Q3 companies controlled all stages of production can be a vulnerability. Additionally, another reason the industry

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was so impacted was due to the nature of meat As a result, we think that the DOJ’s prosecution of fixing processing, mass numbers of employees are in close chicken prices, will cause the price of chicken to decrease quarters with one another. Until the pandemic, is over, the since there will no longer be executives at large meat meat packing companies will be subject to margin processing companies illicitly pricing chicken. We think this compression due to increased costs related to COVID-19 is a problem for the chicken operations of the main players protocols: since margins for chicken mean processing are lower since price increases are already insignificant. So, if prices in • COVID-19 monitoring programs which staff chicken fall, chicken meat processing operation well medical professionals to monitor workers become less profitable. We think this is a negative for • PPE for workers Tyson, so we which we price in decreasing to stagnant • Decreased workers due to social distancing sales for the chicken segment into our model. attempts which may reduce productivity Roll-ups

Overall domestic meat production facilities are adapting Since the meat processing industry is experiencing slow to the pandemic, but at a cost. growing (under 1% annually), main players, like Tyson, are growing with external strategies. Three out of the four African Swine Fever public meat packing companies have spent billions of dollars to expand their operations in the last five years. In 2019, China meat prices increased after China euthanized tens of millions of hogs to contain a fast- Meat Packing Public Competitors: spreading swine disease.21 United States based meat Company M&A Expenses processing plants, like Tyson, increased sales by 20%-30%+ in Last 5 years as Chinese exporters sourced meat internationally since ($B) the disease is estimated to have killed 150 million to 200 TSN 7.6 million hogs. Tyson management believed that the disease JBSS3-BR 9.8 would lead to ongoing benefits for it and other U.S. based SAFM 0 companies, but we believe that trade tensions between 288-HK 2.7 the United States and China, and now the COVID-19 Source: Bloomberg pandemic make the near term benefits less fruitful. As a result, we chose not price in continued gains by projecting The one main player, Sanderson Farms, has not used a roll the pork segment based on USDA guidance for FY2020. up strategy was the target of a roll up strategy by And for FY2021 on, we use a historical three year average Durational Capital Management, which offered $3.3 for sales growth to only partially price in increased billion.25 Sanderson Farms declined this offer, but if the international sales to China. company shows any signs of wanting to make a deal in the future, we worry that Tyson may be in-line with an offer Chicken Pricing Litigation since the company has been the most aggressive in terms of acquisitions. As discussed in the “Company Description” Tyson Foods Inc., announced its cooperation with the section, Tyson has made strategic acquisitions which have Justice Department over a chicken price-fixing increased the company’s exposure to faster growing 22 investigation in June 2020. In October 2020, Tyson’s markets within packaged foods and international involvement includes two former Tyson workers, accused exposure. The problem we see with Sanderson Farms is of conspiring with other parties over a years-long effort to that it is 100% exposure to chicken and the United States. 23 rig bids and fix chicken prices. Other companies This segment and geographic exposure is experiencing investigated include Pilgrim’s Pride Corp. (majority owned slower growth in comparison to other meat segments and by JBS) and Claxton Poultry Farms. We believe this is geographic locations. significant as over the past five year, chicken breasts, for example have maintained a $1.45 per pound price.5 Overall, acquisitions are enabling meat packing companies to expand segment operations and most importantly, the

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company’s international exposure to target developing projected to increase by 0.7% each year for the next five markets with increasing meat consumption.9 years to $226.3 billion.4 Main players are using to main strategies to outpace industry growth expectations: International Expansion acquisitions and international exports.

Main players in the meat processing industry is shifting its Large companies are consolidating smaller companies in focus to international markets. Meat consumption in the an effort to grow externally. We think this strategy United States is not growing nearly as fast as in emerging combined with strategic company buyout can contribute markets like Mexico, China, and others. As a result, main to internal growth through economies of scale if the added players are increasing their exports to international companies have better margins with lower per unit costs. locations. IBISWorld projects meat exports to increase an While we think this is a good way for meat packing annualized 5.3% to $23.0 billion over the five.4 We think companies to grow, we are concerned over the this strategy is good, but it is subject to international vulnerability of this business model, as discussed in the trading policy as well as the value of the U.S. dollar. A “Industry Trend” section. strategy that we like better, as there are less moving parts that impact margins, is meat processing expansion to The second strategy the main players are using is international markets. For example, Tyson Foods international exports. In developing markets, meat announced in November (2020) that it plans to build new consumption is increasing as disposable income rises. As a production facilities in China and Thailand and expand its result, international markets are a catalyst for growth in facility in the Netherlands. The endeavors will add 100,000 the industry as discussed in more detail in the “Industry metric tons of fully cooked poultry capacity to Tyson’s Trends” section. output.11 Currently, Tyson has less exposure to Growth strategies, in this industry are challenged by international markets, since it primarily operates in the external shocks like animal diseases that impact livestock United States. yield, droughts which impact feed yield, and now, global Company Revenue pandemics which adversely affect the supply chain. We Exposure think the pandemic is the most harmful shock, due to Outside of U.S. plants being shut down which is very costly, as discussed TSN 13.9% in more detail in the “Industry Trends” section. One other JBS 38.6% factor that challenges growth, in the meatpacking industry is intense and concentrated competition. SAFM 8.6% 288-HK 45.4% Main Players in Meat Processing/Packaging Industry: Source: FactSet

Other main players like JBS and W.H. Group have better international exposure, outside the United States, since both companies are headquartered in emerging markets, Brazil and China, respectively. Even though Tyson has less exposure right now, we believe that Tyson is positioned well to grow globally since the company is making international reach a priority, according to management.1 MARKETS AND COMPETITION Source IBISWorld Competition is high and is concentrated in 4 main player: Meat packing companies compete in a mature industry Tyson Food Inc, Cargill. Inc., Inc., and JBS with low-margins (due to capital intensity) and few US Holdings make up over 50% of the meat packing opportunities to differentiate products from peers. industry.4 We think this impacts growth as all of the main According to IBISWorld, the industry’s revenue is four companies are using the same growth strategies and

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offer very similar products which disenables product Hormel Foods Corp. (HRL): differentiation and really any competitive advantage. Hormel Foods Corp. engages in the production of meat For the purposes of this report, we include the public meat and food products. It operates through the following packing behemoths such as, JBS SA (which has a majority segments: Grocery Products, Refrigerated Foods, Jennie-O stake in Pilgrim’s Pride), Sanderson Farms Inc., and W.H. Turkey Store, and International and Other.31 The group (which owns Smithfield Foods Inc.). Company’s products primarily consist of meat and other food products sold across multiple distribution channels Meat Processing Peer Comparison such as U.S. Retail, U.S. Foodservice, U.S. Deli, and International. The company is based in the United States. JBA.SA (JBSS3-BR): Kraft Heinz Company (KHC): JBS S.A. operates as a processor of a range of . The Company processes meats, such as beef, pork, lamb and The Kraft Heinz Co. engages in the manufacture and chicken, as well as the hides.26 It operates through the market of food and beverage products. It operates following business segments: Brazil, Seara, Beef USA, Pork through the following geographical segments: United USA, Chicken USA (includes Pilgrim’s Pride a vertically States, Canada, and International.30 Its products include integrated chicken segment) and Others. JBS exports its condiments and sauces, cheese and dairy, ambient meals, products throughout the world and is based in Sao Paulo, frozen and chilled meals, and for infant and nutrition. The Brazil. company is based in the United States.

Sanderson Farms Inc. (SAFM): Conagra Brand Inc. (CAG):

Sanderson Farms, Inc. is a vertically integrated poultry Conagra Brands, Inc. engages in the manufacture and sale processing company engaged in the production, of processed and packaged foods.29 It operates through processing, marketing and distribution of fresh and frozen the following segments: Grocery and Snacks; Refrigerated chicken products.27 In addition, the Registrant is engaged and Frozen; International; Foodservice; and Pinnacle in the processing, marketing and distribution of processed Foods. It is based in the United States, such like the other and minimally prepared chicken. The firm offers its peer group members. products under the brand Sanderson Farms and is based in the United States In relation to the public peer group, Tyson is in the middle of the pack in terms of stock price, but leading in terms of W.H. Group (288-HK): market cap, revenue, and net income.

WH Group Ltd. is a Hong Kong based investment holding Meat Packing Public Competitors: company, which engages in the production and sale of Company Stock Price Market Revenue Net packaged meats, fresh pork and hog products.28 The (11/15/20) Cap (M) (M) Income company purchased Smithfield Foods, Inc. in 2013 for $4.7 (M) billion. The company has more exposure to hogs than TSN 63 22275 42405 2022 chickens with the Smithfield Food, Inc. subsidiary being JBSS3-BR 4 10862 51930 623 vertically integrated like its U.S. competitors. SAFM 132 2938 3440 53 288-HK 0.86 12738 24103 1695 Packaged Food Peer Comparison Source: FactSet

For this competitive analysis, we plan to focus on meat Out of the public peer group, JBS generates 22% more processing competitors, but also include some metrics of revenue than Tyson, but less over 2x less net income than packaged food competitors. We do this since we analyze Tyson. Other public competitors like Sanderson Farms and Tyson’s operations and how 20% exposure to packaged W.H. group have smaller operations than the two other food impacts said operation. Below is background on behemoths. public peer group, which we include in our relative valuation model.

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Packaged Food Public Competitors: Meat Packing Public Competitors: Company Stock Price Market Revenue Net Company FY Net 5Y ROIC 5Y ROE 5Y ROA (11/15/20) Cap (M) (M) Income Margin (%) (%) (%) (%) (M) TSN 4.9 10.5 7.6 7.4 TSN 63 22275 42405 2022 JBSS3-BR 1.3 3.3 8.7 2.1 HRL 52 28141 9497 979 SAFM 5.2 13.5 13.6 11.1 KHC 32 38647 24977 1221 288-HK 4.8 11.3 15.7 7.2 CAG 36 17601 11054 487 Source: FactSet Source: FactSet As for the smaller competitors, Sanderson Farms and W.H. Tyson’s packaged food segment makes up 20% of revenue group, they have stronger operating metrics than the as of 2019 at $8418 million. All public packaged food larger scale competition. We think this is because these competitors such as, Hormel, Heinz-Kraft and Conagra companies these companies have less capital than the generate the majority of their income from packaged larger scale companies like JBS and Tyson. foods sales. Even though Tyson has less exposure to As for asset allocation, free cash flow and dividend yields, packaged foods. The company has experienced stronger the larger scale competitors, such include Tyson, have revenue growth in the segment 3.5%, which is 1% stronger middle of the pack free cash flow yields (with the than the revenue growth of Tyson’s entire operations. exception of JBS) and middle of the pack dividend yields. Packaged Foods Public Competitors: Meat Packing Public Competitors: Company P/E TTM (x) EV/EBITDA Historical Company FCF Yield with EV Dividend Yield TTM Revenue 5Y (%) (%) (x) Growth (%) TSN 3.7 2.7 TSN 11.8 8.7 3.5* JBS 8.8 2.5 HRL 32.4 20.3 0.4 SAFM -1.5 1.3 KHC 11.2 15.6 -3.0 288-HK 4.4 4.7 CAG 14.2 14.2 4.1 Source: Bloomberg Source: Bloomberg As discussed previously in the “Industry Trends” segment, As a result, we believe that Tyson’s margins and growth meat processing companies are focusing on spending cash benefit from its exposure to packaged foods because flows on acquisitions. Consequently, a lot of cash flows are packaged food operations are less capital intensive. increasingly going to capital expenditures, as operations Therefore, we see Tysons packaged food operations as a expand. positive differentiator since its meat processing public peer group has zero to little exposure to packaged foods. Tyson and JBS, have over double the amount of capex than the public peer group. This is because these companies are Tyson, like its other meat processing peers has low larger scale and are more aggressive with their acquisition margins. Tyson’s meat processing operations yields strategies than the other competitors. margins between 3%-7% which is significantly less than the processed food segment that generates margins over 10%. Company 2019 Capital We think this provides Tyson a competitive edge over the Expenditures other behemoth, in the group, JBS, since Tyson has ($M) stronger operating metrics as a whole. TSN 1200 JBSS3-BR 1080 SAFM 250 288-HK 766 Source: Bloomberg

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We think the growing capital expenditures, which have Meat Packing Public Competitors: grown by 5.6%, annually, over the past 3 years, is Company P/E EV/EBITDA manageable for Tyson as target acquisitions have stronger TTM (x) TTM (x) cash flows and lower per unit costs. We think this as it is TSN 11.8 8.7 implied by Tyson’s strong revenue growth, given the JBSS3-BR 19.2 4.2 industry average revenue growth (0.6%), and stellar SAFM - 14.2 EBITDA growth. 288-HK 10.4 5.8 Source: Bloomberg Meat Packing Public Competitors: Company Historical 5Y Historical 5Y As a result, we believe that Tyson is a good value stock. Revenue EBITDA With that being said, we are careful to examine forward Growth (%) Growth (%) price metrics, since the was adversely TSN 2.5 8.3 impacted during the past 12 months by the COVID-19 JBSS3-BR 5.9 11.9 pandemic. SAFM 4.4 -14.3 288-HK 1.6 5.7 Meat Packing Public Competitors: Source: Bloomberg Company FY1 P/E FY2 P/E FY1 FY2 EV/EBITDA EV/EBITDA Tyson is in the middle of the pack, relative to its peer group TSN 12.4 10.7 8.5 7.9 in revenue growth, and industry leading with its EBITDA JBSS3-BR 19.9 7.2 4.3 4.9 growth. Outside of strategic acquisitions differentiating SAFM - 44.9 28.3 13.1 Tyson through growth, we think that the increases in meat 288-HK 9.4 8.2 5.9 5.3 prices, over the years, have played a role in strong revenue Source: Bloomberg growth. According to Statista, sirloin Prices (per pound) have increased per annum by 3.4%, ham prices (per We believe FY2 metric forecasts are the most insightful pound) have increased per annum by 1.6%, and whole given that both Pfizer and Moderna have released .32 chicken prices (per pound) have increased by 1.3% per promising vaccine results in November 2020. We think annum. Based on historical data, we expect meat prices to this because we assume there will be a widely increase with the exception of chicken.5 As discussed in the distributable vaccine by FY2021 which should normalize “Industry Trend” section, the meat processing industry is cashflows in FY2022. Such as with the TTM metrics, Tyson being investigated for fixing the price of chicken. JBS SA continues to be priced fairly relative to its peers, albeit subsidiary, Pilgrim’s Pride is the focus of the investigation, more expensive based on estimates. with Tyson cooperating to avoid criminal charges. As a Overall, we think Tyson Foods is a good candidate for a result, we do not expect the price of chicken to increase in value stock, considering its operating and growth metrics price at the same level at it has in the past. We believe this are strong relative to its public peer group. Even with is a negative for Tyson, but since all the major meat strong metrics, the company has average price metrics, processing companies are subject to the same restriction which make the stock a good price. Outside of the ratios, on growth, we think the con neutralizes. Tyson is beefing up, no pun intended, its international Interestingly, we think the market is not pricing in Tyson’s exposure to emerging markets where meat consumption growth like it is for JBS. Tyson is priced in the middle of the is increasing as disposable income increases. The company pack of its public peer group for price to earnings. is doing this by expanding its operations overseas and Additionally, it’s enterprise value to EBITDA metric is lower through strategic acquisitions of smaller companies. than Sanderson Farms, which is experience negative Outside of international expansion and rollups, the growth. company maintains 20% exposure to processed/packaged foods, which is an industry that has higher margins. Ultimately, we think that even through Tyson operates in a low margin industry, meat processing, management is finding catalysts for growth to unlock future value, which makes it stand out against peers.

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ECONOMIC OUTLOOK BS: Management states that international expansion and Disposable Personal Income growth is a current focus of Tyson. And although we do not Meat is a consumer staple, however it is more expensive price in future acquisitions, we price in capital expenditure than other foods, so disable income is important to growth based on Tyson’s historical acquisitions. For consider. This is because households with more disposable FY2020, the company only provides guidance that capex 2 income will purchase more meat than household with less will be similar to last year’s capex levels. After FY2020, we disposable income. According to the Bureau for Economic use the 3 year average dollar amount of capex as the analysis, disposable personal income increased by 0.7%.34 starting point for our projections: We believe it is important to monitor this economic indicator as we enter into another wave of COVID-19 and Capital Expenditure Forecast potential lockdowns, which may adversely impact disposable personal income and meat consumption. 2500 2000 1500 Population Growth 1000 500

The meat processing industry partially depends on Expense ($M) population growth. Since Tyson has 86% exposure to the 0

U.S., the slow U.S. population growth (0.6%) is bad for 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 33 business. Years

Trade Weighted Index Source: Model

The trade-weighted index (TWI) represents the value of The last major assumption on the balance sheet is the the US dollar relative to the currencies of its major trading company’s share repurchase program, which we project partners. When the TWI is low, US-produced meats based on historical levels of change in equity ($306 become more affordable to foreign buyers because the US million). Regardless of the pandemic, we assume that dollar has a relatively lower value against foreign Tyson will continue to use share buyback programs as a currencies. The TWI is expected to increase in 2020.4 way to return cash to shareholders, in addition to its However, currently, the index is decreasing during the established dividend program. pandemic, so U.S. exports are more attractive to foreign buyers: What’s Priced In:

As discussed in the “Company description” section, we price in topline growth growing at a 2.14% 10 year CAGR. We assume that topline growth will be similar to the past recent years, as Tyson continues to make acquisition and gain international exposure. Unfortunately, management does not provide in-depth details on segment volume Source: FRED sales, segment prices, and sales from the meat segments

exposed to international exports. What we are able to VALUATION price in is via segment sales growth, which we based on USDA projections, OECD emerging market meat Assumptions consumption projections (which factor in industry IS: litigation), and Tyson’s historical sales. As for costs, we are able to use management’s figures for COVID-19 expenses For discussion relating to our revenue, expenses, and and assume that Tyson will be subject to these extra profit margin story, see section “Company Description” expenses until the pandemic is under control. In section.

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consequence, we anticipate net margin contraction, until Conclusion sales and costs normalize. Overall, Tyson is BUY based on above average industry What Can’t Effectively Be Priced In growth (2.2% vs 0.6%) and fair price metrics such as P/E (11.1x vs. 19.4x).7 We believe the stock is compressed in We are unable to price in many catalysts for growth with the short term due to its vulnerability to the COVID-19 great precision since Tyson management does not provide pandemic. Prior to the pandemic, the stock hit an all time in-depth data. This includes acquisitions and international high of $92 in February 2020 and now the stock trades at expansion. $64 as of November, the same year due external shock, which we think is limited to interim years, if not only the EPS next few years. We are within EPS consensus since we assume Tyson will experience slow growth, but above industry average KEYS TO MONITOR (0.6%) and increased costs associated with the COVID-19 Overall, we believe that Tyson is trading beneath the price pandemic. Other analysts believe a similar margin story in that it should ($76) due to the COVID-19 pandemic. the near term based on the EPS ranges: Consequently, we think that Tyson is a BUY since our EPS FY2021 FY2022 estimated fair price of $75, represents a 18.8% upside FactSet $5.35- $5.98- from the market price, as of 19 November 2020 ($64). Range $5.95 $6.95 Moving forward, we believe that Tyson’s acquisitions Henry Fund $5.56 $6.01 should be monitored as well as international expansion Source: FactSet and Model announcements, in the long term. Additionally, we think that trade-weighted index (TWI) should be monitored Models factored into target price since exports depend on the relative value between the To determine a fair price for Tyson, we only factor in the United States Dollar and foreign currencies. In the short relative valuation. term, disposable income should be watched, during the duration of the pandemic, since meat consumption is influenced by household disposable income. REFERENCES

1. 2019 Tyson Food, Inc. Annual Report 2. Tyson Foods Reports Third Quarter 2020 Results 3. Tyson Foods Reports Fourth Quarter 2020 Results 4. IBISWorld 5. Statista 6. FactSet 7. Bloomberg 8. JDSUPRA 9. Organization for Economic Co-operation and Source: Model Development (OECD) and the Food and Agriculture

Organization’s (FAO) Outlook 2019-2028 We chose not to include the result of the DCF model since 10. U.S. Bureau of Labor Statistics the target price is inflated by low interest rates. We chose 11. Tyson Foods Expansion Announcement not to factor in the DDM because we think it is too high 12. Tyson Foods Acquisition of AdvancePierre since Tyson pays out a large amount (cash) of dividends via 13. Tyson Food Acquisition of Keystone Foods its asset allocation strategy. 14. Tyson Foods Acquisition of BRF.SA Segments 15. Tyson Foods Acquisition of American Proteins, Inc. 16. Modern Farmer

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17. Meatandpoultry 18. BusinessInsider 19. Tyson Foods Supply Chain Breaking 20. Washington Post 21. Wall Street Journal 22. Wall Street Journal 23. Bloomberg 24. WattPoultry 25. WattPoultry 26. 2019 JBS.SA Annual Report 27. 2019 Sanderson Farms Inc. Annual Report 28. 2019 W.H. Group Annual Report 29. 2019 Conagra Foods Comp. Annual Report 30. 2019 Kraft Heinz Comp. Annual Report 31. 2019 Hormel Food Corp. 32. Vaccine News: 1, 2 33. United States Census Bureau 34. Bureau of Economic Analysis DISCLAIMER

Henry Fund reports are created by graduate students in the Applied Securities Management program at the University of ’s Tippie College of Business. These reports provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of our students. Henry Fund analysts are not registered investment advisors, brokers or licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold an investment position in the companies mentioned in this report.

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Fiscal Years Ending 2017 2018 2019 2020 Q1 2020 Q2 2020 Q3 2020 Q4E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Total Revenue 38260.00 40052.00 42405.00 43185.00 43918.10 45491.22 46413.56 47351.05 48318.16 49308.67 50323.31 51362.81 52427.93 Total Revenue Growth 4.68% 5.87% 1.84% 1.70% 3.58% 2.03% 2.02% 2.04% 2.05% 2.06% 2.07% 2.07%

Segments Beef (star of the pandemic b/c price increases) Sales 14823.00 15473.00 15828.00 3838.00 3979.00 3653.00 4272.00 15742.00 16214.26 16737.41 17277.43 17834.88 18410.32 19004.32 19617.49 20250.44 20903.82

Sales Growth 4.39% 2.29% 3.67% -8.19% 3% 3.23% 3.23% 3.23% 3.23% 3.23% 3.23% 3.23% 3.23% Average Sales Grwoth 3.23% Operating Income 877.00 1013.00 1107.00 410.00 109.00 651.00

Margin 5.92% 6.55% 6.99% 10.68% 2.74% 17.82% x

Pork (star of the pandemic b/c price increases) Sales 4,909 5238.00 4879.00 4932.00 1379.00 1266.00 1115.00 1,368.00 5,128.00 5179.28 5195.413512 5211.59728 5227.83146 5244.11621 5260.451687 5276.83805 5293.275456 5309.764064 Sales Growth 6.70% -6.85% 1.09% -8.19% -11.93% 1% 0.31% 0.31% 0.31% 0.31% 0.31% 0.31% 0.31% 0.31% 0.31% Operating Income 645 361 263 191 93 107

Margin 12.31% 7.40% 5.33% 13.85% 7.35% 9.60% x

Chicken (tricky because price fixing scandal) Sales 11409.00 12044.00 13300.00 3292.00 3397.00 3112.00 3,433.00 13,234.00 13234 13366.34 13500.0034 13635.00343 13771.35347 13909.067 14048.15767 14188.63925 14330.52564 Sales Growth 5.57% 10.43% 3.19% -8.39% -0.50% 0% 1% 1% 1% 1% 1% 1% 1% 1% Operating Income 1053 866 621 57 99 -120

Margin 9.23% 7.19% 4.67% 1.73% 2.91% -3.86% x

Prepared Foods ( restaurants and food retail at grocery stores) Sales 7,346 7853.00 8668.00 8418.00 2140.00 2080.00 2035.00 2,277.00 8,532.00 8702.64 9572.90 9768.01 9967.09 10170.23 10377.51 10589.01 10804.82 11025.03 Sales Growth 7% 10.38% -2.88% -2.80% -2.16% 2% 10% 2.04% 2.04% 2.04% 2.04% 2.04% 2.04% 2.04% Sales Growth Average 2.04% Operating Income 452 845 843 158 191 145

Margin 5.76% 9.75% 10.01% 7.38% 9.18% 7.13% x

International/Other Sales 349.00 305.00 1289.00 498.00 465.00 402.00 491.00 1,856.00 1,862.90 1,862.90 1,869.80 1,869.80 1,876.70 1,883.60 1,890.50 1,897.40 1,904.30 Sales Growth -13% 323% -6.63% -13.55%

OECD-FAO AGRICULTURAL OUTLOOK 2019-2028 Developing countries per capita meat consumption 26.5 26.9 27 27 27.1 27.1 27.2 27.3 27.4 27.5 27.6 1.51% 0.37% 0.00% 0.37% 0.00% 0.37% 0.37% 0.37% 0.36% 0.36% Operating Income -106.00 -53.00 -7.00 10.00 9.00 -8.00

Margin 0.00% 0.00% 0.00% 2.01% 1.94% 0.00% x

International Sales Sales -1412.00 -1317.00 -1362.00 -332.00 -299.00 -295.00 -381.00 -1307.00 -1274.98125 -1243.7469 -1213.27772 -1183.55497 -1154.56037 -1126.27607 -1098.68468 -1071.76922 -1045.51313 Sales Growth -6.73% 3.42% -9.94% -1.34% 29.15% -4.04% Avg. Sales Growth -2.45% -2.45% -2.45% -2.45% -2.45% -2.45% -2.45% -2.45% -2.45% -2.45% Operating Income 0 0 0 0 0 0 Margin 0% 0% 0% 0% 0% 0% x Tyson Foods, Inc. Income Statement (Millions) Fiscal Years Ending Nov. 15 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Sales 38,260.00 40,052.00 42,405.00 43,185.00 43,918.10 45,491.22 46,413.56 47,351.05 48,318.16 49,308.67 50,323.31 51,362.81 52,427.93 Cost of sales -32,416.00 -33,983.00 -36,285.00 -37,786.88 -37,612.02 -38,992.74 -39,817.51 -40,656.68 -41,522.71 -42,410.33 -43,320.21 -44,253.05 -45,209.55 Depreciation -642.00 -723.00 -819.00 -891.23 -943.82 -997.92 -1,053.74 -1,111.47 -1,171.32 -1,233.47 -1,298.12 -1,365.46 -1,435.69 Amortization -119.00 -220.00 -279.00 -205.75 -199.73 -193.89 -188.22 -182.72 -177.38 -172.19 -167.16 -162.27 -157.53 Gross profit 5,083.00 5,126.00 5,022.00 4,301.14 5,162.53 5,306.67 5,354.09 5,400.18 5,446.75 5,492.68 5,537.81 5,582.02 5,625.17 Selling, general and administrative -2,152.00 -2,071.00 -2,195.00 -2,180.91 -2,217.93 -2,297.38 -2,343.96 -2,391.30 -2,440.14 -2,490.17 -2,541.41 -2,593.90 -2,647.69 Operating income / loss 2,931.00 3,055.00 2,827.00 2,120.23 2,944.59 3,009.29 3,010.13 3,008.88 3,006.61 3,002.51 2,996.41 2,988.12 2,977.47 Interest income 7.00 7.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 11.00 Interest expense -279.00 -350.00 -462.00 -301.76 -427.48 -319.91 -327.20 -317.05 -324.34 -351.55 -360.01 -369.10 -378.89 Other, net -31.00 33.00 55.00 45.80 46.57 48.24 49.22 50.21 51.24 52.29 53.37 54.47 55.60 Total other income / expense: -303.00 -310.00 -396.00 -244.96 -369.91 -260.66 -266.98 -255.84 -262.10 -288.26 -295.64 -303.63 -312.29 Income / loss before income taxes 2,628.00 2,745.00 2,431.00 1,875.27 2,574.68 2,748.63 2,743.15 2,753.04 2,744.51 2,714.25 2,700.77 2,684.49 2,665.18 Income tax expense / benefit -850.00 282.00 -396.00 -431.31 -592.18 -632.18 -630.92 -633.20 -631.24 -624.28 -621.18 -617.43 -612.99 Net Income 1,778.00 3,027.00 2,035.00 1,443.96 1,982.51 2,116.44 2,112.23 2,119.84 2,113.27 2,089.97 2,079.59 2,067.05 2,052.19 Net income / loss attributable to noncontrolling interests -4.00 -3.00 -13.00 -13.00 -13.00 -13.00 -13.00 -13.00 -13.00 -13.00 -13.00 -13.00 -13.00 Net income / loss attributable to Tyson 1,774.00 3,024.00 2,022.00 1,430.96 1,969.51 2,103.44 2,099.23 2,106.84 2,100.27 2,076.97 2,066.59 2,054.05 2,039.19 Weighted average shares Class A basic 296.0 295.0 293.0 288 284 280 276 273 269 266 262 258 254 Class B basic 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 Earnings per share 4.85 8.28 5.57 3.99 5.56 6.01 6.06 6.15 6.19 6.19 6.23 6.26 6.28 Dividends per share 0.98 1.28 1.55 1.68 1.68 1.83 1.99 2.16 2.35 2.55 2.78 3.02 3.28 Tyson Foods, Inc. Common Size Income Statement (As a Percentage of Revenue) Fiscal Years Ending Nov. 15 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Cost of sales -84.73% -84.85% -85.57% -87.50% -85.64% -85.71% -85.79% -85.86% -85.94% -86.01% -86.08% -86.16% -86.23% Depreciation -1.68% -1.81% -1.93% -2.06% -2.15% -2.19% -2.27% -2.35% -2.42% -2.50% -2.58% -2.66% -2.74% Amortization -0.31% -0.55% -0.66% -0.48% -0.45% -0.43% -0.41% -0.39% -0.37% -0.35% -0.33% -0.32% -0.30% Gross profit 13.29% 12.80% 11.84% 9.96% 11.75% 11.67% 11.54% 11.40% 11.27% 11.14% 11.00% 10.87% 10.73% Selling, general and administrative -5.62% -5.17% -5.18% -5.05% -5.05% -5.05% -5.05% -5.05% -5.05% -5.05% -5.05% -5.05% -5.05% Operating income / loss 7.66% 7.63% 6.67% 4.91% 6.70% 6.62% 6.49% 6.35% 6.22% 6.09% 5.95% 5.82% 5.68% Interest income 0.02% 0.02% 0.03% 0.03% 0.03% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% Interest expense -0.73% -0.87% -1.09% -0.70% -0.97% -0.70% -0.70% -0.67% -0.67% -0.71% -0.72% -0.72% -0.72% Other, net -0.08% 0.08% 0.13% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% 0.11% Total other income / expense: -0.79% -0.77% -0.93% -0.57% -0.84% -0.57% -0.58% -0.54% -0.54% -0.58% -0.59% -0.59% -0.60% Income / loss before income taxes 6.87% 6.85% 5.73% 4.34% 5.86% 6.04% 5.91% 5.81% 5.68% 5.50% 5.37% 5.23% 5.08% Income tax expense / benefit -2.22% 0.70% -0.93% -1.00% -1.35% -1.39% -1.36% -1.34% -1.31% -1.27% -1.23% -1.20% -1.17% Net Income 4.65% 7.56% 4.80% 3.34% 4.51% 4.65% 4.55% 4.48% 4.37% 4.24% 4.13% 4.02% 3.91% Net income / loss attributable to noncontrolling interests -0.01% -0.01% -0.03% -0.03% -0.03% -0.03% -0.03% -0.03% -0.03% -0.03% -0.03% -0.03% -0.02% Net income / loss attributable to Tyson 4.64% 7.55% 4.77% 3.31% 4.48% 4.62% 4.52% 4.45% 4.35% 4.21% 4.11% 4.00% 3.89% Tyson Foods, Inc. Balance Sheet (Millions) Fiscal Years Ending Nov. 15 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Assets: Cash and cash equivalents 318.00 270.00 484.00 5943.94 3296.21 4433.30 4610.36 5408.57 6856.22 7382.99 7796.85 8091.72 8257.01 Accounts receivable, net 1,675.00 1,723.00 2,173.00 2372.70 2587.14 2873.23 3143.07 3437.99 3761.43 4115.59 4503.44 4928.23 5393.51 Inventories 3,239.00 3,513.00 4,108.00 4334.45 4567.02 4901.23 5180.96 5476.24 5789.64 6121.42 6472.71 6844.69 7238.62 Other current assets 219.00 182.00 404.00 273.74 278.39 288.36 294.20 300.15 306.28 312.56 318.99 325.58 332.33 Total current assets 6,258.00 5,688.00 7,169.00 12924.82 10728.75 12496.11 13228.59 14622.95 16713.56 17932.56 19091.99 20190.21 21221.46 Net property, plant and equipment 6,375.00 6,169.00 7,282.00 7711.67 8153.69 8609.76 9081.49 9570.49 10078.34 10606.58 11156.80 11730.55 12329.42 Goodwill 9,324.00 9,739.00 10,844.00 10844.00 10844.00 10844.00 10844.00 10844.00 10844.00 10844.00 10844.00 10844.00 10844.00 Intangible assets, net 6,243.00 6,759.00 7,037.00 6831.25 6631.52 6437.63 6249.40 6066.68 5889.30 5717.11 5549.95 5387.68 5230.16 Other assets 673.00 754.00 765.00 729.71 742.10 768.68 784.26 800.10 816.45 833.18 850.33 867.89 885.89 Total assets 28,066.00 29,109.00 33,097.00 39,041.45 37,100.05 39,156.17 40,187.74 41,904.23 44,341.64 45,933.44 47,493.06 49,020.33 50,510.93 Liabilities: Current debt 906.00 1,911.00 2,102.00 6514.00 2038.50 2038.50 1369.00 1369.00 2134.20 2134.20 2134.20 2134.20 2134.20 Accounts payable 1,698.00 1,694.00 1,926.00 2025.18 2126.49 2274.25 2395.78 2523.61 2658.85 2801.54 2952.12 3111.03 3278.76 Other current liabilities 1,424.00 1,426.00 1,485.00 1447.64 1472.22 1524.95 1555.87 1587.30 1619.71 1652.92 1686.93 1721.78 1757.48 Total current liabilities 4,032.00 5,031.00 5,513.00 9986.82 5637.21 5837.70 5320.65 5479.91 6412.77 6588.66 6773.25 6967.01 7170.44 Long-term debt 9,297.00 7,962.00 9,830.00 10389.27 10610.99 10899.47 11167.70 11455.94 11766.63 12100.94 12460.59 12847.44 13263.45 Deferred income taxes 2,979.00 2,107.00 2,356.00 2566.09 3523.16 3761.18 3753.68 3767.22 3755.54 3714.13 3695.68 3673.41 3647.00 Other liabilities 1,199.00 1,198.00 1,172.00 1189.67 1189.67 1189.67 1189.67 1189.67 1189.67 1189.67 1189.67 1189.67 1189.67 Total Liabilities 21,535.00 21,329.00 24,384.00 34118.66 26598.23 27525.72 26752.35 27372.64 29537.36 30182.06 30892.45 31644.53 32440.99 Shareholder's Equity: Common stock and capital in excess of par4,423.00 value 4,432.00 4,423.00 4466.22 4509.44 4552.66 4595.89 4639.11 4682.33 4712.58 4712.58 4712.58 4712.58 Retained earnings 9,776.00 12,329.00 13,787.00 14733.39 16225.59 17817.49 19368.16 20886.39 22354.72 23753.45 25093.28 26368.23 27571.80 Accumulated other comprehensive loss / income16.00 -15.00 -117.00 -117.00 -117.00 -117.00 -117.00 -117.00 -117.00 -117.00 -117.00 -117.00 -117.00 Treasury stock, at cost -3,674.00 -3,943.00 -4,011.00 -4317.00 -4623.00 -4929.00 -5235.00 -5541.00 -5847.00 -6153.00 -6459.00 -6765.00 -7071.00 Total Tyson shareholders' equity 10,541.00 12,803.00 14,082.00 14765.61 15995.04 17324.16 18612.04 19867.50 21073.05 22196.04 23229.87 24198.81 25096.38 Noncontrolling interests 18.00 8.00 144.00 144.00 144.00 144.00 144.00 144.00 144.00 144.00 144.00 144.00 144.00 Total shareholders' equity 10,559.00 12,811.00 14,226.00 14909.61 16139.04 17468.16 18756.04 20011.50 21217.05 22340.04 23373.87 24342.81 25240.38 Total liabilities and shareholders' equity28,066.00 29,109.00 33,097.00 39,041.45 37,100.05 39,156.17 40,187.74 41,904.23 44,341.64 45,933.44 47,493.06 49,020.33 50,510.93 Tyson Foods, Inc. Common Size Balance Sheet (As a Percentage of Revenue) Fiscal Years Ending Nov. 15 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Assets: Cash and cash equivalents 0.83% 0.67% 1.14% 13.76% 7.51% 9.75% 9.93% 11.42% 14.19% 14.97% 15.49% 15.75% 15.75% Accounts receivable, net 4.38% 4.30% 5.12% 5.49% 5.89% 6.32% 6.77% 7.26% 7.78% 8.35% 8.95% 9.59% 10.29% Inventories 8.47% 8.77% 9.69% 10.04% 10.40% 10.77% 11.16% 11.57% 11.98% 12.41% 12.86% 13.33% 13.81% Other current assets 0.57% 0.45% 0.95% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% 0.63% Total current assets 16.36% 14.20% 16.91% 29.93% 24.43% 27.47% 28.50% 30.88% 34.59% 36.37% 37.94% 39.31% 40.48% Net property, plant and equipment 16.66% 15.40% 17.17% 17.86% 18.57% 18.93% 19.57% 20.21% 20.86% 21.51% 22.17% 22.84% 23.52% Goodwill 24.37% 24.32% 25.57% 25.11% 24.69% 23.84% 23.36% 22.90% 22.44% 21.99% 21.55% 21.11% 20.68% Intangible assets, net 16.32% 16.88% 16.59% 15.82% 15.10% 14.15% 13.46% 12.81% 12.19% 11.59% 11.03% 10.49% 9.98% Other assets 1.76% 1.88% 1.80% 1.69% 1.69% 1.69% 1.69% 1.69% 1.69% 1.69% 1.69% 1.69% 1.69% Total assets 73.36% 72.68% 78.05% 90.41% 84.48% 86.07% 86.59% 88.50% 91.77% 93.15% 94.38% 95.44% 96.34% Liabilities: Current debt 2.37% 4.77% 4.96% 15.08% 4.64% 4.48% 2.95% 2.89% 4.42% 4.33% 4.24% 4.16% 4.07% Accounts payable 4.44% 4.23% 4.54% 4.69% 4.84% 5.00% 5.16% 5.33% 5.50% 5.68% 5.87% 6.06% 6.25% Other current liabilities 3.72% 3.56% 3.50% 3.35% 3.35% 3.35% 3.35% 3.35% 3.35% 3.35% 3.35% 3.35% 3.35% Total current liabilities 10.54% 12.56% 13.00% 23.13% 12.84% 12.83% 11.46% 11.57% 13.27% 13.36% 13.46% 13.56% 13.68% Long-term debt 24.30% 19.88% 23.18% 24.06% 24.16% 23.96% 24.06% 24.19% 24.35% 24.54% 24.76% 25.01% 25.30% Deferred income taxes 7.79% 5.26% 5.56% 5.94% 8.02% 8.27% 8.09% 7.96% 7.77% 7.53% 7.34% 7.15% 6.96% Other liabilities 3.13% 2.99% 2.76% 2.75% 2.71% 2.62% 2.56% 2.51% 2.46% 2.41% 2.36% 2.32% 2.27% Total Liabilities 56.29% 53.25% 57.50% 79.01% 60.56% 60.51% 57.64% 57.81% 61.13% 61.21% 61.39% 61.61% 61.88% Shareholder's Equity: Common stock and capital in excess of par value 11.56% 11.07% 10.43% 10.34% 10.27% 10.01% 9.90% 9.80% 9.69% 9.56% 9.36% 9.18% 8.99% Retained earnings 25.55% 30.78% 32.51% 34.12% 36.95% 39.17% 41.73% 44.11% 46.27% 48.17% 49.86% 51.34% 52.59% Accumulated other comprehensive loss / income 0.04% -0.04% -0.28% -0.27% -0.27% -0.26% -0.25% -0.25% -0.24% -0.24% -0.23% -0.23% -0.22% Treasury stock, at cost -9.60% -9.84% -9.46% -10.00% -10.53% -10.84% -11.28% -11.70% -12.10% -12.48% -12.84% -13.17% -13.49% Total Tyson shareholders' equity 27.55% 31.97% 33.21% 34.19% 36.42% 38.08% 40.10% 41.96% 43.61% 45.01% 46.16% 47.11% 47.87% Noncontrolling interests 0.05% 0.02% 0.34% 0.33% 0.33% 0.32% 0.31% 0.30% 0.30% 0.29% 0.29% 0.28% 0.27% Total shareholders' equity 27.60% 31.99% 33.55% 34.52% 36.75% 38.40% 40.41% 42.26% 43.91% 45.31% 46.45% 47.39% 48.14% Total liabilities and shareholders' equity 73.36% 72.68% 78.05% 90.41% 84.48% 86.07% 86.59% 88.50% 91.77% 93.15% 94.38% 95.44% 96.34% Tyson Foods, Inc. Historical Cash Flow Statement (Millions) Fiscal Years Ending Nov. 15 2017 2018 2019 Cash provided by operating activities 2,599.00 2,963.00 2,513.00 Net income / loss 1,778.00 3,027.00 2,035.00 Adjustments to reconcile net income / loss to cash provided by operating activities 821.00 -64.00 478.00 Depreciation and amortization 761.00 943.00 1,098.00 Depreciation 642.00 723.00 819.00 Amortization 119.00 220.00 279.00 Gain on dispositions of businesses 0.00 -42.00 -17.00 Other, net 249.00 186.00 151.00 Impairment of assets 214.00 175.00 94.00 Share-based Compensation 92.00 69.00 77.00 Other, net excluding impairment of assets and share-based compensation expense -57.00 -58.00 -20.00 Net changes in operating assets and liabilities -150.00 -286.00 -846.00 Increase / decrease in accounts receivable -55.00 -2.00 -226.00 Increase / decrease in inventories -246.00 -207.00 -214.00 Increase / decrease in accounts payable 61.00 -44.00 -55.00 Increase / decrease in income taxes payable / receivable 55.00 111.00 -254.00 Increase / decrease in interest payable 16.00 -3.00 47.00 Net changes in other operating assets and liabilities 19.00 -141.00 -144.00 Cash used for / provided by investing activities -4,164.00 -1,906.00 -3,464.00 Additions to property, plant and equipment -1,069.00 -1,200.00 -1,259.00 Purchases of marketable securities -79.00 -42.00 -64.00 Proceeds from sale of marketable securities 61.00 37.00 63.00 Other, net -3,077.00 -1,498.00 -2,374.00 Acquisitions, net of cash acquired -3,081.00 -1,474.00 -2,462.00 Other, net excluding acquisitions, net of cash acquired 4.00 -24.00 88.00 Proceeds from sale of businesses 0.00 797.00 170.00 Cash used for / provided by financing activities 1,530.00 -1,102.00 1,171.00 Proceeds from issuance of long-term debt 5,444.00 1,148.00 4,634.00 Payments on debt -1,349.00 448.00 -2,073.00 Repayments of debt and lease obligation -3,159.00 -1,307.00 -3,208.00 Borrowings / payments on revolving credit facility 1,810.00 1,755.00 1,135.00 Payments on revolving credit facility -2,110.00 -1,755.00 -1,065.00 Proceeds from issuance of commercial paper 8,138.00 21,024.00 17,722.00 Repayments of commercial paper -7,360.00 -21,197.00 -17,327.00 Payment of advance pierre TRA liability -223.00 0.00 0.00 Purchases of Tyson Class A common stock -860.00 -427.00 -252.00 Dividends -319.00 -431.00 -537.00 Other, net 169.00 88.00 69.00 Other, net excluding debt issuance costs 169.00 88.00 69.00 Stock options exercised 154.00 102.00 99.00 Other, net excluding stock options exercised 15.00 -14.00 -30.00 Effect of exchange rate changes on cash 4.00 -3.00 -6.00 Cash, cash equivalents, restricted cash and restricted cash equivalents, period increase / decrease, including-31.00 exchange rate-48.00 effect 214.00 Cash and cash equivalents at beginning of period 349.00 318.00 270.00 Cash and cash equivalents at end of period 318.00 270.00 484.00 Tyson Foods, Inc. Forecasted Cash Flow Statement (Millions) Fiscal Years Ending Nov. 15 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Net Income 1430.96 1969.51 2103.44 2099.23 2106.84 2100.27 2076.97 2066.59 2054.05 2039.19 Depreciation expense in net PPE - Amortization expense in net intangibles -

Operating activities: Accounts receivable, net -199.70 -214.44 -286.09 -269.84 -294.93 -323.43 -354.16 -387.85 -424.79 -465.28 Inventories -226.45 -232.57 -334.21 -279.73 -295.29 -313.39 -331.78 -351.29 -371.98 -393.93 Other current assets 130.26 -4.65 -9.97 -5.85 -5.94 -6.13 -6.28 -6.43 -6.59 -6.75 Other assets 35.29 -12.39 -26.58 -15.59 -15.84 -16.34 -16.74 -17.14 -17.56 -18.00 Current debt 4412.00 -4475.50 0.00 -669.50 0.00 765.20 0.00 0.00 0.00 0.00 Accounts payable 99.18 101.32 147.76 121.53 127.83 135.24 142.69 150.58 158.91 167.72 Other current liabilities -37.36 24.57 52.73 30.92 31.43 32.42 33.20 34.01 34.85 35.70 Long-term debt 559.27 221.72 288.48 268.23 288.25 310.69 334.31 359.66 386.85 416.01 Deferred income taxes 210.09 957.07 238.02 -7.49 13.53 -11.68 -41.40 -18.45 -22.28 -26.41 Other liabilities 17.67 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Investing activities: Net property, plant and equipment -429.67 -442.03 -456.06 -471.73 -489.00 -507.84 -528.25 -550.21 -573.75 -598.88 Intangible assets, net 205.75 199.73 193.89 188.22 182.72 177.38 172.19 167.16 162.27 157.53

Financing activities: Common stock 43.22 43.22 43.22 43.22 43.22 43.22 30.26 0.00 0.00 0.00 Dividends -484.57 -477.30 -511.54 -548.56 -588.61 -631.94 -678.24 -726.76 -779.11 -835.62 Common stock repurchased -306.00 -306.00 -306.00 -306.00 -306.00 -306.00 -306.00 -306.00 -306.00 -306.00

Net increase (decrease) in cash & equivalents 5459.94 -2647.73 1137.09 177.06 798.21 1447.65 526.77 413.86 294.87 165.29 Beginning of year cash 484.00 5943.94 3296.21 4433.30 4610.36 5408.57 6856.22 7382.99 7796.85 8091.72 End of year cash 5943.94 3296.21 4433.30 4610.36 5408.57 6856.22 7382.99 7796.85 8091.72 8257.01 Tyson Foods, Inc. Weighted Average Cost of Capital (WACC) Estimation (Millions)

Cost of Equity: ASSUMPTIONS: Risk-Free Rate 0.95% 10-year Treasury bond Nov 1st Beta 0.75 3 year, weekly Beta Equity Risk Premium 5.15% Henry Fund Consensus Cost of Equity 4.79%

Cost of Debt: Risk-Free Rate 0.95% Implied Default Premium 1.58% Pre-Tax Cost of Debt 2.53% YTM on company's 2034 noncallable corporate bond (TSN.GK) Marginal Tax Rate 16% After-Tax Cost of Debt 2.12%

Market Value of Common Equity: MV Weights Total Shares Outstanding 294.25 Current Stock Price $57.00 MV of Equity 16,772.25 54.02%

Market Value of Debt: Short-Term Debt 1,926 Current Portion of LTD 2,102 Long-Term Debt 9,830 PV of Operating Leases 419.09 MV of Total Debt 14,277.09 45.98%

Market Value of the Firm 31,049.34 100.00%

Estimated WACC 3.56% Tyson Foods, Inc. Value Driver Estimation (Millions) Fiscal Years Ending Nov. 15 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

NOPLAT: EBITDA: Sales 38,260.00 40,052.00 42,405.00 43,185.00 43,918.10 45,491.22 46,413.56 47,351.05 48,318.16 49,308.67 50,323.31 51,362.81 52,427.93 Cost of sales -32,416.00 -33,983.00 -36,285.00 -37,786.88 -37,612.02 -38,992.74 -39,817.51 -40,656.68 -41,522.71 -42,410.33 -43,320.21 -44,253.05 -45,209.55 Selling, general and administrative -2,152.00 -2,071.00 -2,195.00 -2,180.91 -2,217.93 -2,297.38 -2,343.96 -2,391.30 -2,440.14 -2,490.17 -2,541.41 -2,593.90 -2,647.69 Depreciation expense -642.00 -723.00 -819.00 -891.23 -943.82 -997.92 -1,053.74 -1,111.47 -1,171.32 -1,233.47 -1,298.12 -1,365.46 -1,435.69 Amortization expense -119.00 -220.00 -279.00 -205.75 -199.73 -193.89 -188.22 -182.72 -177.38 -172.19 -167.16 -162.27 -157.53 Other,net -31.00 33.00 55.00 45.80 46.57 48.24 49.22 50.21 51.24 52.29 53.37 54.47 55.60 Interest on operating leases 9.91 8.86 10.60 11.22 11.87 12.53 13.22 13.93 14.67 15.44 16.24 17.07 17.95 EBITDA 2,909.91 3,096.86 2,892.60 2,177.25 3,003.03 3,070.06 3,072.57 3,073.02 3,072.52 3,070.24 3,066.01 3,059.66 3,051.02

Tax Shield: Marginal tax rate 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% 16.30% Provision for taxes 850.00 -282.00 396.00 431.31 592.18 632.18 630.92 633.20 631.24 624.28 621.18 617.43 612.99 Interest income -1.14 -1.14 -1.79 -1.79 -1.79 -1.79 -1.79 -1.79 -1.79 -1.79 -1.79 -1.79 -1.79 Interest expense 45.48 57.05 75.31 49.19 69.68 52.14 53.33 51.68 52.87 57.30 58.68 60.16 61.76 Operating leases 1.62 1.44 1.73 1.83 1.93 2.04 2.15 2.27 2.39 2.52 2.65 2.78 2.93 Adjusted Taxes 895.95 -224.65 471.24 480.54 662.00 684.58 684.62 685.36 684.70 682.30 680.71 678.59 675.88

Change in deferred taxes 434.00 -872.00 249.00 210.09 957.07 238.02 -7.49 13.53 -11.68 -41.40 -18.45 -22.28 -26.41 NOPLAT 2,447.96 2,449.51 2,670.36 1,906.80 3,298.11 2,623.51 2,380.46 2,401.20 2,376.14 2,346.53 2,366.85 2,358.80 2,348.72

Invested Capital (IC): Working capital Accounts receivable, net 1,675.00 1,723.00 2,173.00 2,372.70 2,587.14 2,873.23 3,143.07 3,437.99 3,761.43 4,115.59 4,503.44 4,928.23 5,393.51 Inventories 3,239.00 3,513.00 4,108.00 4,334.45 4,567.02 4,901.23 5,180.96 5,476.24 5,789.64 6,121.42 6,472.71 6,844.69 7,238.62 Other current assets 219.00 182.00 404.00 273.74 278.39 288.36 294.20 300.15 306.28 312.56 318.99 325.58 332.33

Accounts payable 1,698.00 1,694.00 1,926.00 2,025.18 2,126.49 2,274.25 2,395.78 2,523.61 2,658.85 2,801.54 2,952.12 3,111.03 3,278.76 Other current liabilities 1,424.00 1,426.00 1,485.00 1,447.64 1,472.22 1,524.95 1,555.87 1,587.30 1,619.71 1,652.92 1,686.93 1,721.78 1,757.48 Working capital 2,011.00 2,298.00 3,274.00 3,508.07 3,833.83 4,263.61 4,666.58 5,103.48 5,578.78 6,095.10 6,656.09 7,265.68 7,928.21

Net PPE 6,375.00 6,169.00 7,282.00 7,711.67 8,153.69 8,609.76 9,081.49 9,570.49 10,078.34 10,606.58 11,156.80 11,730.55 12,329.42

Other operating accounts: Intangible assets, net 6,243.00 6,759.00 7,037.00 6,831.25 6,631.52 6,437.63 6,249.40 6,066.68 5,889.30 5,717.11 5,549.95 5,387.68 5,230.16 Other assets 673.00 754.00 765.00 729.71 742.10 768.68 784.26 800.10 816.45 833.18 850.33 867.89 885.89 PV operating leases 391.92 350.33 419.09 443.82 469.26 495.50 522.65 550.80 580.02 610.43 642.09 675.11 709.58 Other liabilities 1,199.00 1,198.00 1,172.00 1,189.67 1,189.67 1,189.67 1,189.67 1,189.67 1,189.67 1,189.67 1,189.67 1,189.67 1,189.67 Invested Capital 14,494.92 15,132.33 17,605.09 18,034.85 18,640.73 19,385.51 20,114.72 20,901.89 21,753.22 22,672.74 23,665.59 24,737.25 25,893.60

Free Cash Flow (FCF): NOPLAT 2447.96 2449.51 2670.36 1906.80 3298.11 2623.51 2380.46 2401.20 2376.14 2346.53 2366.85 2358.80 2348.72 Change in IC 2707.30 637.41 2472.76 429.76 605.88 744.78 729.22 787.16 851.33 919.52 992.85 1071.66 1156.34 FCF -259.34 1812.09 197.60 1477.04 2692.23 1878.73 1651.24 1614.04 1524.80 1427.01 1374.00 1287.14 1192.38

Return on Invested Capital (ROIC): NOPLAT 2447.96 2449.51 2670.36 1906.80 3298.11 2623.51 2380.46 2401.20 2376.14 2346.53 2366.85 2358.80 2348.72 Beg. IC 11787.62 14494.92 15132.33 17605.09 18034.85 18640.73 19385.51 20114.72 20901.89 21753.22 22672.74 23665.59 24737.25 ROIC 20.77% 16.90% 17.65% 10.83% 18.29% 14.07% 12.28% 11.94% 11.37% 10.79% 10.44% 9.97% 9.49%

Economic Profit (EP): Beg. IC 11,787.62 14,494.92 15,132.33 17,605.09 18,034.85 18,640.73 19,385.51 20,114.72 20,901.89 21,753.22 22,672.74 23,665.59 24,737.25 x (ROIC - WACC) 17.21% 13.34% 14.08% 7.27% 14.73% 10.51% 8.72% 8.38% 7.81% 7.23% 6.88% 6.41% 5.93% EP 2028.11 1933.22 2131.37 1279.74 2655.74 1959.56 1689.98 1684.75 1631.65 1571.72 1559.29 1515.87 1467.62 Tyson Foods, Inc. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models (Millions) Key Inputs: CV Growth of NOPLAT 0.65% CV Year ROIC 9.49% WACC 3.56% Cost of Equity 4.79% Terminal NOPLAT 2,349 1467.62 Teminal EP Fiscal Years Ending Nov. 15 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

DCF Model: Free Cash Flow (FCF) 1477.04 2692.23 1878.73 1651.24 1614.04 1524.80 1427.01 1374.00 1287.14 1192.38 Continuing Value (CV) 75139.44 PV of FCF 1426.24 2510.22 1691.47 1435.53 1354.92 1235.99 1116.94 1038.46 939.35 54836.62

Value of Operating Assets: 67585.75 Non-Operating Adjustments Debt -14277.09 Non-controlling interest -13.00 ESOP -289.75 Underfunded Pension -240.00 Value of Equity 52765.92 Shares Outstanding 363.00 Intrinsic Value of Last FYE 145.36 Implied Price as of Today 146.65

EP Model: Economic Profit (EP) 1279.74 2655.74 1959.56 1689.98 1684.75 1631.65 1571.72 1559.29 1515.87 1467.62 Continuing Value (CV) 50402.18 PV of EP 1235.73 2476.20 1764.24 1469.21 1414.28 1322.60 1230.20 1178.50 1106.28 36783.42

Total PV of EP 49980.66 Invested Capital (last FYE) 17605.09 Value of Operating Assets: 67585.75 Non-Operating Adjustments Debt -14277.09 Non-controlling interest -13.00 ESOP -289.75 Underfunded Pension -240.00 Value of Equity 52765.92 Shares Outstanding 363.00 Intrinsic Value of Last FYE 145.36 Implied Price as of Today 146.65 Tyson Foods, Inc. Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Nov. 15 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

EPS $ 3.99 $ 5.56 $ 6.01 $ 6.06 $ 6.15 $ 6.19 $ 6.19 $ 6.23 $ 6.26 $ 6.28

Key Assumptions CV growth of EPS 0.65% CV Year ROE 8.08% Cost of Equity 4.79%

Future Cash Flows P/E Multiple (CV Year) 22.20 EPS (CV Year) $ 6.28 Future Stock Price $ 139.52 Dividends Per Share 1.68 1.68 1.83 1.99 2.16 2.35 2.55 2.78 3.02 Discounted Cash Flows 1.60 1.53 1.59 1.65 1.71 1.77 1.84 1.91 1.98 91.56

Intrinsic Value as of Last FYE $ 107.14 Implied Price as of Today $ 108.09 Tyson Foods, Inc. Relative Valuation Models

EPS EPS Ticker Company Price 2020E 2021E P/E 20 P/E 21plus ev/ebitda MFI CN Maple Leaf Foods, Inc. 19.30 0.71 0.92 27.18 20.98 PPC JBS.SA 4.03 0.22 0.57 18.32 7.07 BACHOCSAFM Sanderson Farms, Inc. 128.50 -1.26 3.65 -101.98 35.21 OB MM Industrias Bachoco SAB de CV 3.21 0.29 0.32 11.07 10.03 HRL Hormel Foods Corp 49.90 1.67 1.81 29.88 27.57 CAG Conagra Food Corp. 35.48 2.28 2.51 15.56 14.14 KHC Kraft Heinz Comp. 31.54 2.80 2.52 11.26 12.52 Average 18.88 15.38

TSN Tyson Foods, Inc. $57.00 $3.99 $5.56 14.3 10.2

Implied Relative Value: P/E (EPS20) $ 75.37 P/E (EPS21) $ 85.56 Tyson Foods, Inc. Valuation of Options Granted under ESOP

Current Stock Price $57.00 Risk Free Rate 0.95% Current Dividend Yield 1.80% Annualized St. Dev. of Stock Returns 35.97% BB

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 5,362,672 54.00 6.70 $ 54.03 $ 289,745,168 Range 2 Range 3 Range 4 Range 5 Range 6 Range 7 Range 8 Range 9 Total 5,362,672 $ 54.00 6.70 $ 22.45 $ 289,745,168 Tyson Foods, Inc. Effects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding (Not Millions) Number of Options Outstanding (shares): 5,362,672.00 Average Time to Maturity (years): 6.70 Expected Annual Number of Options Exercised: 800,398.81

Current Average Strike Price: 54.00 Cost of Equity: 4.79% Current Stock Price: 57.00

Fiscal Years Ending Nov. 15 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E Increase in Shares Outstanding: 800,398.81 800,398.81 800,398.81 800,398.81 800,398.81 800,398.81 560,279.16 0.00 0.00 0.00 Average Strike Price: 54.00 54.00 54.00 54.00 54.00 54.00 54.00 54.00 54.00 54.00 Increase in Common Stock Account: 43,221,535.52 43,221,535.52 43,221,535.52 43,221,535.52 43,221,535.52 43,221,535.52 30,255,074.87 0.00 0.00 0.00

Change in Treasury Stock 3 year treasury change306,000,000.00 306,000,000.00 306,000,000.00 306,000,000.00 306,000,000.00 306,000,000.00 306,000,000.00 306,000,000.00 306,000,000.00 306,000,000.00 Expected Price of Repurchased Shares: 57.00 59.73 62.59 65.59 68.74 72.03 75.48 79.10 82.89 86.86 Number of Shares Repurchased: 5,368,421.05 5,122,935.12 4,888,674.72 4,665,126.52 4,451,800.69 4,248,229.76 4,053,967.69 3,868,588.78 3,691,686.84 3,522,874.23

Shares Outstanding (beginning of the year) 293,000,000.00 288,431,977.75 284,109,441.43 280,021,165.52 276,156,437.80 272,505,035.92 269,057,204.97 265,563,516.44 261,694,927.66 258,003,240.83 Plus: Shares Issued Through ESOP 800,398.81 800,398.81 800,398.81 800,398.81 800,398.81 800,398.81 560,279.16 0.00 0.00 0.00 Less: Shares Repurchased in Treasury 5,368,421.05 5,122,935.12 4,888,674.72 4,665,126.52 4,451,800.69 4,248,229.76 4,053,967.69 3,868,588.78 3,691,686.84 3,522,874.23 Shares Outstanding (end of the year) 288,431,977.75 284,109,441.43 280,021,165.52 276,156,437.80 272,505,035.92 269,057,204.97 265,563,516.44 261,694,927.66 258,003,240.83 254,480,366.60 CV Beef Sales Growth 146.65 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 1.29% 140.33 141.00 141.66 142.33 142.99 143.66 144.32 1.54% 140.69 141.35 142.02 142.68 143.35 144.01 144.68 1.79% 141.04 141.71 142.37 143.04 143.70 144.37 145.03 2.04% 141.40 142.06 142.73 143.39 144.06 144.72 145.39 2.29% 141.75 142.42 143.08 143.75 144.41 145.08 145.74 2.54% 142.11 142.77 143.44 144.10 144.77 145.43 146.10

CV Packaged Food Growth 2.79% 142.46 143.13 143.79 144.46 145.12 145.79 146.45

CV Cost of Sales 146.65 -84.73% -85.23% -85.73% -86.23% -86.73% -87.23% -87.73% -4.30% 322.38 283.33 244.29 205.24 166.19 127.14 88.09 -4.55% 302.86 263.81 224.76 185.71 146.67 107.62 68.57 -4.80% 283.33 244.29 205.24 166.19 127.14 88.09 49.05 -5.05% 263.81 224.76 185.71 146.67 107.62 68.57 29.52

CV SG&A SG&A CV -5.30% 244.29 205.24 166.19 127.14 88.09 49.05 10.00 -5.55% 224.76 185.71 146.67 107.62 68.57 29.52 (9.52) -5.80% 205.24 166.19 127.14 88.09 49.05 10.00 (29.05) WACC 146.65 2.66% 2.91% 3.16% 3.56% 3.66% 3.91% 4.16% 1.10% 287.76 241.57 206.61 165.50 157.24 139.16 124.06 0.95% 266.90 226.78 195.76 158.54 150.96 134.26 120.18 0.80% 249.40 214.10 186.30 152.34 145.34 129.83 116.64 0.65% 234.52 203.10 177.96 146.78 140.28 125.81 113.41 0.50% 221.70 193.46 170.57 141.76 135.71 122.14 110.44 CV Growth CV 0.35% 210.54 184.96 163.96 137.21 131.54 118.78 107.71 0.20% 200.75 177.40 158.02 133.07 127.74 115.69 105.18

MRP 146.65 4.40% 4.65% 4.90% 5.15% 5.40% 5.65% 5.90% 0.600 202.09 193.49 185.47 177.96 170.93 164.32 158.11 0.650 189.68 181.28 173.46 166.15 159.32 152.92 146.90 0.700 178.45 170.25 162.63 155.53 148.90 142.69 136.86 0.746 169.02 161.01 153.57 146.65 140.20 134.16 128.51 BETA 0.800 158.92 151.12 143.90 137.18 130.93 125.09 119.63 0.850 150.37 142.77 135.74 129.21 123.14 117.47 112.18 0.900 142.52 135.10 128.26 121.91 116.00 110.50 105.37 Tyson Foods, Inc. Key Management Ratios

Fiscal Years Ending Nov. 15 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

Liquidity Ratios: Working Capital (Millions) (Current assets - Current liabilities) 2011.00 2298.00 3274.00 3508.07 3833.83 4263.61 4666.58 5103.48 5578.78 6095.10 6656.09 7265.68 7928.21 Current Ratio (Current assets / Current liabilities) 1.64 1.74 1.96 2.01 2.07 2.12 2.18 2.24 2.30 2.37 2.43 2.50 2.57 Quick Ratio ((Cash + Marketable securities + Accounts receivable) / Current liabilities) 0.49 0.40 0.48 0.83 1.04 1.25 1.46 1.61 1.66 1.75 1.82 1.87 1.90

Asset-Management Ratios: Inventory Turnover Ratio (Costs of Goods Sold/Average Inventory) 10.86 10.07 9.52 8.95 8.45 8.24 7.90 7.63 7.37 7.12 6.88 6.65 6.42 Receivables Turnover Ratio (Sales/Average Account Receivables) 23.79 23.57 21.77 19.00 17.71 16.66 15.43 14.39 13.42 12.52 11.68 10.89 10.16 Account Payable Turn Over Ratio (Costs of Goods Sold/Average Account Payables) 20.20 20.04 20.05 19.13 18.12 17.72 17.05 16.53 16.02 15.53 15.06 14.60 14.15 Cash Conversion Cycle (365/Inventory Turnover Ratio + 365/Receivables Turnover - 365/Account Payable Turnover) 30.89 33.53 36.89 40.90 43.66 45.62 48.46 51.12 53.93 56.91 60.07 63.43 66.99 Total Asset Turnover (Sales/Total Assets) 1.36 1.38 1.28 1.11 1.18 1.16 1.15 1.13 1.09 1.07 1.06 1.05 1.04

Financial Leverage Ratios: Debt Ratio (Total Liabilities/Total Assets) 0.77 0.73 0.74 0.87 0.72 0.70 0.67 0.65 0.67 0.66 0.65 0.65 0.64 D/EBITDA Ratio (Total Debt/EBITDA) 2.76 2.47 3.04 5.25 3.09 3.08 2.95 2.98 3.19 3.23 3.27 3.32 3.37

Profitability Ratios: Gross Margin (Sales-Cost of Goods Sold/Sales) 15.27% 15.15% 14.43% 12.50% 14.36% 14.29% 14.21% 14.14% 14.06% 13.99% 13.92% 13.84% 13.77% Operating Margin 7.66% 7.63% 6.67% 4.91% 6.70% 6.62% 6.49% 6.35% 6.22% 6.09% 5.95% 5.82% 5.68% Net Profit Margin (Net Income/Sales) 4.64% 7.55% 4.77% 3.31% 4.48% 4.62% 4.52% 4.45% 4.35% 4.21% 4.11% 4.00% 3.89% ROA (Net Income/Total Assets) 6.32% 10.39% 6.11% 3.67% 5.31% 5.37% 5.22% 5.03% 4.74% 4.52% 4.35% 4.19% 4.04% ROE (Net Income/Shareholder's Equity) 16.83% 23.62% 14.36% 9.69% 12.31% 12.14% 11.28% 10.60% 9.97% 9.36% 8.90% 8.49% 8.13%

Payout Policy Ratios: Dividend Payout Ratio (Dividend/EPS) 20.12% 15.39% 27.74% 42.08% 30.21% 30.40% 32.76% 35.11% 37.92% 41.26% 44.57% 48.22% 52.25% Total Payout Ratio ((Dividends + Repurchases)/Net Income) 52.25% 24.04% 31.26% 55.25% 39.77% 38.87% 40.71% 42.46% 44.66% 47.39% 49.97% 52.83% 55.98%