Premium Dairy Focus And Automation Will Unlock New Markets

Key Takeaways

• Focus on premium and branded dairy products, supply chain agility, and tailored market offerings supports sustained revenue and market share growth globally.
  
• Efficiency drives through automation, cost control, and optimized operations are expanding margins and improving net earnings, with further upside expected.
  
• Heavy reliance on traditional dairy and insufficient adaptation to plant-based trends risks long-term competitiveness, margin pressure, and exposure to supply, regulatory, and trade uncertainties.

Catalysts

Produces, markets, and distributes dairy products in Canada, the United States, Australia, Argentina, and the United Kingdom.

• Saputo's strategic focus on higher-value, branded, and convenience-oriented dairy products is supported by robust demand from a growing global population, accelerating urbanization, and shifting consumer habits-these factors are enabling volume and pricing growth across channels, directly benefiting revenue and supporting long-term market share gains.
  
• Accelerating operational efficiency initiatives-including recent large-scale capital investments in automation, network optimization, and SG&A reduction-are driving substantial run-rate cost savings, margin expansion, and improved net earnings, with further upside as the final tranche of targeted efficiencies is achieved in the U.S. by fiscal year-end.
  
• Expansion into premium and specialty segments, such as value-added cheeses and beverage enhancers, targets consumers in emerging middle-class markets and developed economies alike, allowing margin lift through favorable mix and premiumization, which supports sustainable improvement in average selling prices and overall net margin.
  
• Enhanced global presence and supply chain agility, paired with deepening commercial partnerships and tailored offerings in export and domestic markets, positions Saputo to capitalize on the global shift toward Western-style diets and rising dairy demand in underserved international markets, providing multi-year revenue growth avenues.
  
• The new, more favorable U.S. Federal Milk Marketing Order pricing formula and continued robust commercial execution are expected to improve input cost structures and unlock incremental EBITDA, directly supporting net margin and earnings growth as market dynamics stabilize.

Saputo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Saputo's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.8% today to 4.1% in 3 years time.
• Analysts expect earnings to reach CA$853.8 million (and earnings per share of CA$2.16) by about August 2028, up from CA$-153.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as CA$945 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, up from -89.0x today. This future PE is about the same as the current PE for the CA Food industry at 18.1x.
• Analysts expect the number of shares outstanding to decline by 2.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.97%, as per the Simply Wall St company report.

Saputo Future Earnings Per Share Growth

Risks

• Rising consumer shift toward plant-based and alternative proteins is expected to accelerate and was not directly addressed in Saputo's growth narrative; this could reduce demand for core dairy offerings, potentially impacting Saputo's long-term revenue growth and market share.
  
• Heightened environmental and regulatory pressures, particularly regarding sustainability and agricultural emissions, could drive up compliance costs and capex requirements (as alluded to in discussions about inflation and input management), risking net margin compression over the long term.
  
• Milk supply volatility in key regions such as Australia (droughts, flooding) and Argentina ("chaos" and macro volatility), as highlighted in management's remarks, poses a persistent risk to input costs and production reliability, impacting operational efficiency, earnings stability, and potentially revenue.
  
• Despite notable cost optimization initiatives underway, Saputo's strategy remains heavily reliant on traditional dairy, with limited evidence of diversification into high-growth segments like plant-based alternatives; this could result in long-term earnings pressure versus more agile competitors as secular trends weaken core dairy demand.
  
• Ongoing industry consolidation among large retailers and geopolitical risks (e.g., tariffs, trade flows) could increase pricing pressure and create export barriers; management's need for "agile supply chain" and vigilance on "trade and policy developments" underscores a risk to international revenues and gross margin resilience over time.

Valuation

• The analysts have a consensus price target of CA$34.364 for Saputo 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 CA$38.0, and the most bearish reporting a price target of just CA$26.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$20.7 billion, earnings will come to CA$853.8 million, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of CA$33.07, the analyst price target of CA$34.36 is 3.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.