When a stock falls 10% in a single day, it’s hard not to do a double take… especially when the stock in question is a company with a market cap of $13 billion-plus. 

#-ad_banner-#Couple that with the fact that the company is the world’s largest supplier of chicken, pork and beef, and there’s a good chance this could be a great buying opportunity. 

Tyson Foods (NYSE: TSN) is the latest stock to get hit. Shares took a big hit this month after missing expectations. This comes as the company faced margin pressure as supplies of hogs and cattle were tight. However, this isn’t as big a deal as many investors might fear. It’s seeing a decreasing of feed costs, which should offset tightening supplies going forward. 

Overall, the second quarter was a great one for Tyson. Rising beef and pork prices drove sales for the period up nearly 8% from a year ago, to just over $9 billion — the company’s first $9 billion quarter. Tyson revised its full-year sales target to $37 billion, $1 billion higher than its previous estimate. The company’s operating margin rose to 4% from 2.8%, and earnings per share (EPS) rose 58% to $0.60.

Tyson’s largest customer is a very strong retailer, Wal-Mart (NYSE: WMT), which accounted for 13% of Tyson’s sales last year. The size and scale of Wal-Mart gives it a competitive advantage, which is a positive for Tyson. And with its size and brand recognition, Tyson can easily expand its product offerings to drive incremental sales growth. This includes increasing its presence in the prepared foods business, a segment that currently accounts for only 10% of its revenues last year.

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	Tyson Foods
	While it may start with Wal-Mart as its biggest customer, Tyson sells meat products to grocers, restaurants, food-service distributors, schools, hospitals and many other places.

One great thing about Tyson is that it covers many different sales channels. While it may start with Wal-Mart as its biggest customer, Tyson sells meat products to grocers, restaurants, food-service distributors, schools, hospitals and many other places where protein ends up on the table. 

It’s this diversification that helps Tyson post solid results due to strong demand. For instance, while this past winter was difficult for many companies, Tyson saw no net effect. While sales to schools were soft due to many school closings, busy moms made up for it by stocking up on Tyson prepared foods for their kids to eat on their days off from school.

Even after the recent 10% drop in share price, shares are still up more than 60% in the past 12 months:

TSN data by YCharts

All along, Tyson has been buying its own shares. In the most recent quarter, Tyson repurchased 2.5 million shares for $100 million. Tyson still has over 32 million shares remaining to on its current authorization program, and the company plans to continue being an active buyer of its shares.

One area  that could use some improvement is the dividend. Tyson has a dividend yield of only 0.7%. However, since Tyson is only paying out 9% of its earnings in dividends, there’s a lot of room for Tyson to increase the dividend.

Tyson is an attractive stock compared with other meat producers, with a forward price-to-earnings (P/E) ratio of 12.9 and an enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of just 7.4. This is lower than major competitors, including Hillshire Brands (NYSE: HSH) and Hormel Foods (NYSE: HRL).

Risks to Consider: As with any commodities-based business, Tyson is dealing with the laws of supply and demand. This leads to fluctuating prices that Tyson can get for chicken, pork and beef. Tyson also faces the threats of bird flu outbreaks in China and other illnesses that can impact its meat production. Furthermore, Tyson faces competition on the international front, particularly from China, where the costs of production can be lower, affecting global meat prices and Tyson’s bottom line. 

Action to Take –> The market appears to have overreacted on recent news. Investors should buy TSN for 15% upside to $47, based on the assumption that the stock will trade closer to its long-term average P/E of 15 on expected 2015 EPS of $3.11. Longer term, being the industry leader, there’s no reason that Tyson shouldn’t be trading closer to the industry average P/E of 22.

P.S. My colleague, Nathan Slaughter, has found a new way to maximize returns from dividend stocks. This strategy finds stocks that not only pay dividends, but buy back stock and give their shareholders yet another form of “extra” payment that protects them from heavy losses in market downturns. Because these stocks carry more than just dividend yields, we call them “Total Yield” stocks. And last year, 24 out of 25 of the stocks with the highest Total Yield ratings more than doubled the S&P 500’s return. To learn more about his Total Yield strategy, I invite you to check out this free presentation.