BBB Foods stock 'a solid growth story, but valuation looks rich' - Itau BBA

EditorEmilio Ghigini
Published 01/22/2025, 04:30 AM
TBBB
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On Wednesday, Itau BBA began covering BBB Foods Inc (NYSE:TBBB) stock with a Market Perform rating and set the price target at $32.00 per share. The research firm highlighted BBB Foods, also known as Tiendas 3B, as the largest hard discounter in Mexico and its fastest-growing food retailer.

With a network of over 2,600 stores, the company holds approximately 3% of Mexico's formal food retailing market share and is on a consistent growth trajectory. The company's impressive performance is reflected in its substantial 57% return over the past year, according to InvestingPro data, which also indicates annual revenue of $2.7 billion.

Analysts at Itau BBA pointed out the company's potential for significant earnings before interest, taxes, depreciation, and amortization (EBITDA) and earnings per share (EPS) growth, with compound annual growth rates (CAGRs) expected to be around 50% and 40% respectively. They emphasized the company's expansion strategy, noting that it continues to open new stores and capitalize on its unique business model in a region with few hard discounters.

InvestingPro analysis supports this growth narrative, with data showing expected sales growth this year and current EBITDA of $100.8 million. Subscribers can access 11 additional exclusive ProTips about TBBB's financial health and growth prospects.

The firm also acknowledged BBB Foods' solid cash flow generation, return metrics, and growth prospects, which are likely to contribute to the company's momentum in an underpenetrated market. Despite these positive factors, Itau BBA remarked on the stock's current valuation, considering it rich compared to other food retailers in Mexico.

This assessment aligns with InvestingPro's Fair Value analysis, which suggests the stock is currently overvalued. They suggested that investors might look for a more favorable entry point into the stock, particularly given its high P/E ratio of 250x and EV/EBITDA multiple of 37x.

Itau BBA's initiation of coverage reflects a recognition of BBB Foods' solid growth narrative and its position within the Latin American market. The company's unique approach to discount retailing in Mexico has set it apart from competitors and positioned it for continued expansion and financial success. However, the firm's Market Perform rating indicates a cautious approach to the stock's current pricing, advising potential investors to watch for a better opportunity to invest.

In other recent news, BBB Foods has reported substantial growth in its third-quarter financial results for 2024. The Mexico City-based grocery hard discount retail giant disclosed a 29.8% increase in total revenue, reaching 14,834 million Mexican Pesos, compared to the same quarter in the previous year. The company's aggressive expansion strategy played a significant role in this growth, with 131 new stores launched during the quarter, contributing to an 11.6% surge in Same Store Sales.

BBB Foods' EBITDA saw a significant rise of 54.0%, amounting to 688 million Pesos, attributed to higher sales volume and efficient operational cost management. The company experienced a net profit of 258 million Pesos for the quarter, a stark contrast to the net loss of 339 million Pesos in the third quarter of 2023.

The company's balance sheet showed a healthy liquidity position with 1,269 million Pesos in cash and equivalents and an additional 2,964 million in short-term bank deposits. Analysts from Jefferies have assigned a Hold rating to BBB Foods, while Scotiabank (TSX:BNS) has maintained a Sector Outperform rating, reflecting confidence in the company's continued growth trajectory. These recent developments are based on the company's earnings release and are prepared in accordance with International Financial Reporting Standards (IFRS).

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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