As the coronavirus pandemic has continued to plague the globe, key meat provider Tyson Foods has ramped up its spend on technology in an effort to protect workers who have been hit hard by the virus. The stock’s low price has driven the price up by 5% Friday, as investors look for a bargain near the multi-year lows.
Tyson spent half a billion dollars on technology and automation over the last several years, but the coronavirus pandemic demonstrated that the company must likely shell out even more capital to protect workers and meet consumer demand for beef, pork, and poultry, potentially resulting in a change to the entire industry, as once human tasks become automated.
Because protein processing facilities present surroundings that are ripe for the spread of COVID-19, robotics that can replace worker functions may become the norm soon.
The U.S. Centers for Disease Control and Prevention noted that more than 17,300 meat and poultry processing workers in 29 states were infected with Covid-19 in April and May, resulting in 91 deaths. The meat processing industry staffs roughly 585,000 workers and Tyson, which is the largest processor by sales, employs about 122,000 of them.
“As pork, beef and chicken plants are being forced to close, even for short periods of time, millions of pounds of meat will disappear from the supply chain,” John Tyson, Chairman of the Board of Tyson Foods, wrote in a letter published as an advertisement. “As a result, there will be a limited supply of our products available in grocery stores until we are able to reopen our facilities that are currently closed.”
The spike in deaths sent a wave of fear through the industry which resulted in an ephemeral shut down that was used to deploy safety equipment and institute new health measures. The consequence was meat shortages in supermarkets across the nation and a strain on some fast food establishments as well. Wendy’s even depleted its supply of hamburgers at a number of its restaurants.
Because processing is a physically challenging and perilous job, companies like Tyson, which produces about one out of every five pounds of beef, chicken, and pork produced in the U.S., have already been working on automating as many of the processes as possible, but CEO Noel White says that quest is now likely to accelerate.
“I believe it’s not only us as a company, I think the industry will continue to look for solutions through automation,” he told analysts in May. “So I think it will likely accelerate from this point.”
Analysts see the company as a bargain right now, with the stock price trading at its lowest level in years.
“The coronavirus crisis won’t last forever and Tyson most certainly has the financial assets needed to make it through even a very long downturn. You can pick up Tyson shares at a bargain-bin valuation of 11 times trailing earnings or 0.5 times sales. The low share prices also give Tyson a beefy 3% dividend yield right now. This is a rare opportunity to lock in high yields at a downright crazy buy-in price,” says Anders Bylund of the Motley Fool.
For ETF investors looking to invest in Tyson, the IQ Global Resources ETF (GRES) and the First Trust Nasdaq Food & Beverage ETF (FTXG), which have larger allocations of the stock are a good place to start.
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