Does Smithfield Foods, Inc. (SFD) Have a Good Deal?

Tyson Foods has the lowest valuation

Tyson Foods, Inc. (NYSE:TSN) has the lowest EV multiple among the three. At $24.80 per share, Tyson Foods is worth around $8.8 billion on the market. The market values the company at only 6.17 times EV/EBITDA. Tyson operates in four main business segments: Chicken, Pork, Beef and Prepared Foods.

Chicken is the biggest operating income source of Tyson Foods, with $446 million in operating income in 2012. Among those segments, the pork business enjoyed the highest operating margin at nearly 7.6%, while the operating margin of the chicken segment was only 3.85%. The prepared foods segment contributed around $181 million in income, with the operating margin at 5.6%.

Recently, Tyson Foods, Inc. (NYSE:TSN) acquired the assets of Circle Foods, a producer of frozen handheld Mexican foods under several brands including TORTILLALAND and NEUVO GRILLE. According to the company, it would keep Circle Foods’ management and production team to operate the business. Donnie Smith, Tyson Foods’ president and CEO commented that the deal would be “an excellent fit within the branded consumer products group”. He also said: “We believe Tyson’s robust sales structure, as well as our frozen and refrigerated foods distribution system, will enable this business to accelerate its growth.”

Among the three food companies, Hormel Foods Corporation (NYSE:HRL) pays the highest dividend yield at 1.7% while Tyson Foods, Inc. (NYSE:TSN) offers investors only 0.8% dividend yield. Smithfield Foods, Inc. (NYSE:SFD) do not pay any dividends.

My Foolish take

Smithfield Foods seems to have a reasonable offer for its business. Tyson Foods, Inc. (NYSE:TSN) CEO said that the Smithfield Foods, Inc. (NYSE:SFD)acquisition deal would help to intensify globalization within the agriculture industry. Both Tyson and Smithfield could benefit in terms of pork exports, especially to China, as China is considered to have the largest pork market in the world.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Does Smithfield Foods Have a Good Deal? originally appeared on Fool.com.

Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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