Dual Listing And Diversification Will Expand Future Opportunities

Key Takeaways

• Dual listing and diversification expand market presence, potentially boosting share demand and improving financial metrics.
  
• Innovation and operational efficiency investments aim to enhance margins, earnings, and product differentiation.
  
• Rising grain costs and regulatory uncertainties threaten JBS's margins and profitability, with potential operational and trade disruptions impacting global revenue and production stability.

Catalysts

Engages in the processing of animal protein worldwide.

• JBS's dual listing initiative is expected to strengthen corporate governance and expand its investor base, potentially driving higher demand for shares and improving valuation metrics such as earnings per share and price-to-earnings ratio.
  
• The diversification strategy, including geographic expansion and the development of new product categories such as entering the egg market, supports long-term revenue growth by broadening the market base and the product portfolio.
  
• Significant investments in innovation, including the construction of the JBS Biotech Innovation Center, aim to enhance productivity and develop alternative proteins, which could lead to higher margins and improved earnings through differentiation in the market.
  
• Investments in operational efficiency, such as the $200 million upgrades to U.S. beef processing facilities, are intended to increase value-added products and customer service, potentially enhancing operating margins and supporting EBITDA growth.
  
• Strong financial management, evidenced by reduced leverage and significant free cash flow generation, positions JBS well for continued shareholder returns through dividends and share buybacks, supporting EPS growth.

JBS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JBS's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.3% today to 2.5% in 3 years time.
• Analysts expect earnings to reach R$12.5 billion (and earnings per share of R$5.08) by about April 2028, up from R$9.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$16.3 billion in earnings, and the most bearish expecting R$8.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from 9.7x today. This future PE is greater than the current PE for the BR Food industry at 9.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 17.78%, as per the Simply Wall St company report.

JBS Future Earnings Per Share Growth

Risks

• The increased cost of grains, including Brazilian corn, may put pressure on Seara's margins and overall profitability, affecting revenue generation and net margins if costs cannot be effectively passed onto consumers.
  
• The current high price of live cattle in the U.S., due to a challenging beef cycle, may continue to pressure margins for JBS Beef North America, potentially impacting earnings and profitability in one of their key markets.
  
• Tariff changes and international trade uncertainties could negatively impact global trade flows, which may affect JBS’s revenue from exports if they result in adverse tariff environments for JBS's products.
  
• The potential operational disruptions due to climate conditions, as seen in Australia, could impact production capabilities, leading to variability in revenues and margins.
  
• The company's significant planned capital expenditures may not yield expected efficiencies or value if market conditions do not align favorably, potentially affecting future net margins and earnings.

Valuation

• The analysts have a consensus price target of R$50.64 for JBS based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$58.0, and the most bearish reporting a price target of just R$44.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$494.1 billion, earnings will come to R$12.5 billion, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 17.8%.
• Given the current share price of R$41.94, the analyst price target of R$50.64 is 17.2% 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.