Smithfield Foods, Inc. (SFD), Tyson Foods, Inc. (TSN): Investing Carnivore Style

China wants this pork producer

Smithfield Foods, Inc. (NYSE:SFD) recently agreed to be acquired by Shanghui International, the largest meat producer in China. Under the terms of the deal, Smithfield shareholders will receive $34 per share, representing a slight premium to the current market price of $32.75. The transaction is expected to close in the second half of this year.

But some shareholders seem to think they are being low-balled by only being paid $34 each for their shares in the company. They argue the company would be worth well over $34 a share if it split itself up into three divisions.

Personally I think that given Smithfield Foods, Inc. (NYSE:SFD)’s recent performance, shareholders are getting a pretty good deal. Year over year net income for Smithfield declined nearly 30% in 2012, and by almost 50% in 2013. If federal regulators give the green light, the deal is almost certain to go through.

Foolish final take

We are a nation that loves meat, and I don’t see that changing during the next 100 years.  So its understandable how one might conclude that buying stock in one of the top American meat producers is a wise decision.

But in terms of almost any measure of profitability, performance from three of our top producers of meat has been less than stellar of late. Normalized net income data from the latest year available (2012 for Tyson Foods, Inc. (NYSE:TSN) and Hillshire, 2013 for Smithfield) shows that each company registered a much lower number than it did three years ago.

On top of that, none of these three companies pay a decent dividend–Hillshire has the highest yield at 1.5%. So I hate to say it carnivores, but now is not an ideal time to be purchasing any of these three meat companies. It would be difficult to justify calling any of them a bargain at current price levels.  But please, do your own research and see if you agree.

The article Investing Carnivore Style originally appeared on Fool.com and is written by Ryan Palmer.

Fool blogger Ryan Palmer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ryan 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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