On Friday, JBS SA (JBSS3:BZ) (OTC: OTC:JBSAY) stock received an upgrade from Neutral to Overweight by JPMorgan, accompanied by a significant increase in the price target to R$37.00 from R$27.00.
This change follows a recent decline in the company's stock price, which the financial institution deems unwarranted given the improving prospects in several of JBS's operational areas.
The upgrade reflects a positive stance on the company's potential, with JPMorgan highlighting the improving outlook for chicken margins, particularly for Pilgrim's Pride Corp. (NASDAQ:PPC) and Seara. Additionally, the firm anticipates strong performance in the US pork segment and Australian markets, coupled with stable US beef margins and a weakening Brazilian Real (BRL).
JPMorgan forecasts that the second quarter will serve as a positive catalyst for JBS, with expectations of a 2Q EBITDA of R$8.1 billion, which is 15% above the consensus. Furthermore, the financial institution has raised its 2024 EBITDA estimate for JBS to R$30.3 billion, marking an increase of 17% from previous figures and standing 10% above the consensus.
The analyst's outlook is not just limited to the short term, as they suggest that the favorable conditions in the global chicken market should persist, benefiting JBS's diverse portfolio which includes Seara, US pork, and Australian operations. This is expected to counterbalance weaker performance in the US beef sector for the forecasted years of 2024 and 2025.
JPMorgan also points out the attractive valuation of JBS's stock, which is currently trading at 4.8 times its enterprise value to EBITDA (EV/EBITDA) and offers a 13% free cash flow yield.
They note that if the Brazilian Real remains at its current level, as opposed to the projected average, JBS's EBITDA for 2024 could climb to R$31.5 billion, further improving the stock's valuation to 4.6 times EV/EBITDA.
In other recent news, JBS S.A. has reported a robust Q1 performance, with notable increases in EBITDA margins and net profits. The company's net profit reached $332.3 million, while net revenue totaled $18 billion and adjusted EBITDA stood at $1.3 billion. These recent developments highlight a 2% increase in EBITDA margins from the previous quarter and a 5% increase year-over-year.
JBS S.A. has also outlined plans for expansion, including the opening of new plants in Brazil, Saudi Arabia, and Spain. The company is also actively managing its financial strategy, with plans to pay down at least $500 million in gross debt in Q2, aiming for a long-term leverage rate of 2x to 3x net debt EBITDA.
While JBS S.A. expects tougher conditions in the U.S. beef market in the second quarter, it remains optimistic about its chicken and pork segments. The company also sees potential for capturing an additional 2% margin benefit in the U.S. beef market, primarily through labor efficiency and product mix improvements. These insights are based on the company's recent earnings call and analyst notes.
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