Rising Plant-Based Trends And Regulatory Hurdles Will Erode Long-Term Value

Key Takeaways

• Rising demand for alternative proteins and ESG concerns threaten Marfrig's core business, increasing compliance costs and risking exclusion from sustainability-focused investments.
  
• Market and operational volatility from input price swings, trade barriers, regional instability, and disease outbreaks heighten risks to earnings and supply stability.
  
• The merger and focus on branded, value-added products enhance diversification, operational efficiency, and financial stability while positioning for global expansion and increased shareholder returns.

Catalysts

Through its subsidiaries, operates in the food industry in Brazil and internationally.

• Escalating global consumer preference for plant-based and alternative proteins threatens to erode long-term demand for beef and processed animal products, undermining Marfrig's core revenue streams and putting sustained pressure on top-line growth.
  
• Heightened regulatory and reputational scrutiny regarding deforestation, greenhouse gas emissions, and broader ESG practices will likely increase compliance costs and could result in exclusion from sustainability-focused capital pools, leading to higher cost of capital and compressed net margins.
  
• Persistent volatility in input prices such as feed and energy, combined with tightening global trade barriers and protectionist measures, raise the risk of volatile and unpredictable earnings performance, with potential sharp declines in EBITDA and net income during adverse cycles.
  
• Geographic concentration in Latin America, particularly Brazil, exposes Marfrig to currency fluctuations and regional political or economic instability, raising the risk of adverse impacts to reported revenue and profit figures as well as possible operational disruptions.
  
• Industry risk from recurring outbreaks of zoonotic diseases such as avian flu or foot-and-mouth disease remains acute, and expanded exposure after the merger may increase the likelihood of costly export bans, product recalls, and significant one-off charges that undermine both volumes and profitability.

Marfrig Global Foods Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Marfrig Global Foods compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Marfrig Global Foods's revenue will grow by 4.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 1.1% today to 0.5% in 3 years time.
• The bearish analysts expect earnings to reach R$845.9 million (and earnings per share of R$0.79) by about July 2028, down from R$1.8 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 bearish analyst cohort, the company would need to trade at a PE ratio of 26.8x on those 2028 earnings, up from 11.1x today. This future PE is greater than the current PE for the BR Food industry at 10.5x.
• Analysts expect the number of shares outstanding to decline by 4.81% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.62%, as per the Simply Wall St company report.

Marfrig Global Foods Future Earnings Per Share Growth

Risks

• The merger between Marfrig and BRF will create a highly diversified, multi-protein platform with a presence in 117 countries and a combined revenue of R$152 billion, enabling scale advantages, new market access, and geographic diversification, which are likely to support top-line revenue growth and resilience against regional shocks.
  
• Both companies are placing significant emphasis on value-added and branded products, which have historically driven margin expansion; this strategy is expected to boost EBITDA margin and net income as premium products command higher pricing and profitability.
  
• Clear synergies from the merger are estimated at R$805 million per year, with R$400–500 million realized in the first 12 months from operational efficiencies, logistics optimization, tax reduction, and supply chain improvements, directly supporting stronger free cash flow generation and higher net margins over time.
  
• The company has now delivered seven consecutive quarters of deleveraging, with a leverage ratio down to 2.69x, reflecting disciplined capital allocation and improved financial stability that reduces interest expense and enables continued dividend payouts, supporting stronger net income and shareholder returns.
  
• Marfrig is actively pursuing international listing and potentially re-domiciling the company in the U.S., which could lower capital costs, increase access to global investors, and provide additional upside for earnings growth, valuation multiples, and long-term share price appreciation.

Valuation

• The assumed bearish price target for Marfrig Global Foods is R$17.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Marfrig Global Foods's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$32.0, and the most bearish reporting a price target of just R$17.5.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be R$176.9 billion, earnings will come to R$845.9 million, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 20.6%.
• Given the current share price of R$23.0, the bearish analyst price target of R$17.5 is 31.4% lower.
• 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.