On Monday, JPMorgan raised its rating on BRF - Brasil Foods S.A. (NYSE:BRFS) from Neutral to Overweight, citing a robust international market contributing to an optimistic earnings forecast. The upgrade anticipates solid first-quarter performance for the food company, with expectations surpassing the average analyst estimate by 13.3%.
The analyst from JPMorgan highlighted the accelerating international segment as a key driver for the upgrade, with poultry export prices on the rise and a more balanced global supply-demand scenario.
Additionally, the Gulf Cooperation Council (GCC) markets are experiencing increased demand and consumption trends that are expected to benefit BRF. This positive international outlook, combined with strong profitability in Brazil due to favorable processed food prices and a recovery in poultry margins, has led to an improved earnings momentum.
JPMorgan has adjusted its first-quarter 2024 EBITDA estimate for BRF upwards by 9.2% to R$1.816 billion, a figure that is 13.3% higher than the consensus. This revision reflects an anticipated EBITDA margin of 13.5%. For the full year 2024, the firm's EBITDA forecast is R$7.439 billion, which is 12% above the consensus among analysts.
The valuation of BRF also appears attractive to JPMorgan, with the company trading at 5.2 times its expected 2024 earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), which is below the 5-year average of 6.4 times.
The analyst also notes improvements in cash generation, with BRF projected to generate R$2.77 billion in free cash flow in 2024, yielding 10%, supported by operational improvements, a reduction in net financial expenses, and stable capital expenditures.
InvestingPro Insights
Aligning with JPMorgan's optimistic outlook on BRF - Brasil Foods S.A. (NYSE:BRFS), InvestingPro metrics reveal a company that's poised for a potential turnaround. With a market capitalization of $5.33 billion and a notable revenue of $11.05 billion over the last twelve months as of Q4 2023, BRF's financial stature is significant in the Food Products industry. Despite a slight revenue contraction of 0.35% during the same period, the company's gross profit margin remains healthy at 16.48%, indicating a solid operational efficiency.
InvestingPro Tips underscore BRF's strong return over the last year, with a price total return of 160.47%, signaling investor confidence. Analysts predict the company will be profitable this year, which could further fuel its stock performance. The company's robust performance over the last three months, with a 26.79% price total return, complements JPMorgan's rating upgrade and supports the case for BRF's growth potential.
For investors seeking more in-depth analysis, there are additional InvestingPro Tips available, which can be accessed through the dedicated InvestingPro platform for BRF at https://www.investing.com/pro/BRFS. Use the exclusive coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking a wealth of financial data and expert insights to inform your investment decisions.
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