Packaging US Integration And Strong Pulp Demand Will Drive Future Success

Key Takeaways

• Suzano's strategic initiatives, including its U.S. packaging incorporation and CapEx plans, are expected to enhance future value creation and earnings.
  
• Favorable pulp prices and strong demand, especially in Brazil, are projected to improve revenue and net margins by 2025.
  
• Uncertain global conditions and integration challenges could impact Suzano's revenue, margins, and earnings amid demand and FX volatility.

Catalysts

Produces and sells eucalyptus pulp and paper products in Brazil and internationally.

• Suzano's incorporation of Suzano Packaging U.S. is expected to lead to better pricing and cost synergies, positively impacting revenues and margins by 2025.
  
• Higher demand for pulp, coupled with favorable pulp prices announced in early 2025, is anticipated to boost both revenue and net margins.
  
• The operational excellence and record production levels at the Ribas facility in 2024 are expected to keep production costs low, benefiting overall earnings.
  
• Strategic initiatives like the industrial turnaround and new CapEx plans for Suzano Packaging are anticipated to drive higher future value creation and earnings.
  
• Strong demand in the Brazilian market for certain paper lines is expected to boost revenue growth in 2025, with positive spillover effects on net margins.

Suzano Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Suzano's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -14.9% today to 19.4% in 3 years time.
• Analysts expect earnings to reach R$11.7 billion (and earnings per share of R$8.97) by about April 2028, up from R$-7.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$14.6 billion in earnings, and the most bearish expecting R$10.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.5x on those 2028 earnings, up from -9.4x today. This future PE is lower than the current PE for the BR Forestry industry at 15.7x.
• Analysts expect the number of shares outstanding to decline by 3.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 26.12%, as per the Simply Wall St company report.

Suzano Future Earnings Per Share Growth

Risks

• Uncertain global economic conditions, as well as industry-specific challenges, could impact Suzano's revenue and earnings projections by causing fluctuations in demand for its products.
  
• The integration and turnaround of Suzano's new U.S. packaging assets, as a result of the Pactiv Evergreen acquisition, have uncertainties that could affect Suzano's net margins if expected synergies don't materialize.
  
• Potential challenges in servicing all markets due to low inventory levels and unexpected supply disruptions could impact revenue growth, especially in Middle Eastern, African, and Asian markets.
  
• Any adverse changes in the FX market could lead to unfavorable financial impacts, potentially affecting earnings stability and predictability.
  
• The competitive dynamics in China, including the closure or operation challenges of significant players such as Chenming, might lead to volatile demand and pricing, impacting Suzano's revenue forecasts.

Valuation

• The analysts have a consensus price target of R$81.007 for Suzano 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$95.0, and the most bearish reporting a price target of just R$64.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$60.4 billion, earnings will come to R$11.7 billion, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 26.1%.
• Given the current share price of R$53.4, the analyst price target of R$81.01 is 34.1% 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.