Renewable Energy And Urban Expansion Will Drive Sustainable Momentum

Key Takeaways

• Accelerated debt reduction and operational improvements could significantly enhance profitability, efficiency, and dividend capacity across Cosan's portfolio.
  
• Strategic positioning in renewables, logistics, and infrastructure supports resilient, high-quality growth amid favorable structural trends and regulatory tailwinds.
  
• High debt, operational challenges, and industry shifts threaten Cosan's earnings stability, growth prospects, and could sustain discounted valuations due to structural and strategic uncertainties.

Catalysts

Engages in the fuel distribution business.

• Analyst consensus foresees gradual deleveraging and capital discipline at Cosan, but a more bullish view suggests Cosan could achieve near zero net debt at the holding company level much faster than expected, unlocking significant interest expense savings and boosting net margins as fiscal inefficiencies are eliminated.
  
• While analysts broadly believe operational improvements at Rumo and Compass will drive steady growth, this likely underestimates the transformative impact of Cosan's growing market share in key logistics corridors and premium residential gas volumes-the combination may yield compounding gains in EBITDA and materially elevate revenue quality over the coming cycles.
  
• Cosan is uniquely positioned to capitalize on the accelerating global shift to renewable energy and decarbonization, with portfolio companies like Raízen and Compass set to benefit from rapidly increasing demand for low-carbon fuels, bioenergy, and natural gas-supporting long-term revenue and margin expansion as regulatory tailwinds strengthen.
  
• The operational recovery and modernization of Moove following the fire, with diversified manufacturing between Rio and São Paulo, is not just restoring, but could meaningfully enhance efficiency, competitiveness, and cash generation potential, resulting in Moove becoming a robust dividend contributor and margin driver for Cosan by 2026 and beyond.
  
• Cosan's multi-asset platform, underpinned by stable long-term contracts and asset recycling, provides exceptional resilience and the flexibility to capture upside from Brazil's demographic expansion and infrastructure modernization, which points to a structurally higher earnings base and more predictable cash flows than peers.

Cosan Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Cosan compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Cosan's revenue will grow by 76.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -27.6% today to 3.8% in 3 years time.
• The bullish analysts expect earnings to reach R$9.2 billion (and earnings per share of R$4.96) by about August 2028, up from R$-12.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, up from -0.8x today. This future PE is greater than the current PE for the BR Oil and Gas industry at 5.5x.
• Analysts expect the number of shares outstanding to decline by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 27.29%, as per the Simply Wall St company report.

Cosan Future Earnings Per Share Growth

Risks

• Cosan's heavy debt load, with over R$21 billion in average net debt and structurally high interest rates in Brazil, will continue to pressure its net margins and limit the company's flexibility for growth investments or shareholder returns, especially if deleveraging is slower than anticipated.
  
• Inability to quickly monetize or divest assets for deleveraging, amid current volatility in Brazil and challenging market conditions, may prolong high leverage and expose the company to higher refinancing risks and fiscal inefficiencies, negatively impacting earnings and cash flow.
  
• Persistent operational risks in key subsidiaries, such as recent fires affecting Moove's capacity and the delays in Raizen's sugarcane crushing due to weather and fires, highlight exposure to uncontrollable events that can disrupt revenues and drive earnings volatility.
  
• Structural industry shifts, including rising adoption of electric vehicles and the global energy transition to renewables, present an existential risk to Cosan's biofuel and fossil fuel businesses, potentially reducing long-term revenue streams and hindering asset values.
  
• The company's complex and leveraged holding structure, combined with the need for new capital partners in assets like Raizen and the lack of clarity on strategic outcomes, increases execution risk and could lead to persistent valuation discounts in Cosan's market capitalization.

Valuation

• The assumed bullish price target for Cosan is R$22.83, which represents two standard deviations above the consensus price target of R$13.15. This valuation is based on what can be assumed as the expectations of Cosan's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$23.0, and the most bearish reporting a price target of just R$8.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be R$240.9 billion, earnings will come to R$9.2 billion, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 27.3%.
  
• Given the current share price of R$5.4, the bullish analyst price target of R$22.83 is 76.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.