Global Population And Rising Incomes Will Drive Premium Dairy Demand

Key Takeaways

• Operational efficiencies, aggressive share repurchases, and lower capital expenditures position Saputo for margin and earnings growth well beyond market expectations.
  
• Strategic global expansion, brand strength, and product innovation set the stage for broad-based revenue acceleration and multi-region profit growth.
  
• Heavy reliance on traditional dairy, input cost volatility, and environmental scrutiny threaten Saputo's margins, growth prospects, and stability amid shifting consumer and industry dynamics.

Catalysts

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

• Analyst consensus points to $200 million in operational cost savings from capital projects as a catalyst for higher net margins in the U.S., but this significantly understates the scale and persistence of these efficiencies-management commentary and record fill rates suggest Saputo could not only exceed $200 million in annualized savings but also flexibly redeploy these gains to drive further automation, commercial execution, and margin expansion beyond current expectations.
  
• While analysts broadly see buybacks fueling double-digit EPS growth, Saputo's robust cash flow profile and aggressive opportunistic share repurchases, combined with a structurally lower capital expenditure cycle, could accelerate per-share earnings growth well above consensus, particularly if Saputo fully capitalizes on its undervaluation by maximizing the NCIB and increasing future dividends.
  
• Global population growth and rising middle class demand for protein-rich foods, especially in emerging markets, positions Saputo for outsized volume growth-enabled by its strategic expansion in markets like Argentina and a focus on dairy protein categories-which is poised to drive sustained revenue acceleration beyond developed market expectations.
  
• Saputo's deep portfolio of trusted brands, investments in food safety, and agility in product innovation-including premium, value-added, and convenience-focused dairy products-allow it to capture price premiums and win share in high-margin segments, leading to an upward trajectory in both revenue and net margin as consumer preferences shift.
  
• The strategic optimization of Saputo's international network, including the intentional shift toward higher-margin domestic sales in Australia and increased export capabilities in the U.S., coupled with stabilization in Argentina and enhanced cost control in Europe, sets the stage for broad-based, multi-region earnings growth and improved global diversification, contributing to outsized EBITDA expansion over the long term.

Saputo Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Saputo compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Saputo's revenue will grow by 3.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.8% today to 4.9% in 3 years time.
• The bullish analysts expect earnings to reach CA$1.0 billion (and earnings per share of CA$2.63) by about August 2028, up from CA$-153.0 million 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 16.6x on those 2028 earnings, up from -89.5x today. This future PE is lower than the current PE for the CA Food industry at 18.3x.
• 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

• Saputo's core business is heavily reliant on traditional dairy at a time when global secular trends show growing consumer preference for plant-based and alternative proteins, which threatens to erode long-term revenue and limit future volume growth, particularly as aging populations in key Western markets stagnate or decline.
  
• Ongoing volatility in milk input costs and the company's dependency on commodity-driven pricing leaves Saputo exposed to margin compression and earnings instability, as reflected in recent periods of unfavorable U.S. dairy commodity market conditions and ongoing milk supply challenges in Australia and Argentina.
  
• Heightened industry and regulatory scrutiny of greenhouse gas emissions and environmental impacts are likely to increase compliance costs for Saputo, potentially compressing net margins and threatening the company's ability to maintain its social license to operate over the long term.
  
• Saputo has a history of frequent capital-intensive investments and acquisitions, and management continues to allude to sizable CapEx requirements for efficiency and capacity enhancements; this subpar capital allocation could limit free cash flow available for shareholder returns, burdening return on invested capital and long-term earnings growth.
  
• Increasing consolidation and bargaining power among global retail customers, as well as ongoing import/export volatility and changing trade policies, create pressure on pricing and supply chain stability, which may result in volatile revenues and unpredictable margin recovery for Saputo across multiple geographies.

Valuation

• The assumed bullish price target for Saputo is CA$38.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Saputo'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 CA$38.0, and the most bearish reporting a price target of just CA$26.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$21.0 billion, earnings will come to CA$1.0 billion, and it would be trading on a PE ratio of 16.6x, assuming you use a discount rate of 6.0%.
• Given the current share price of CA$33.24, the bullish analyst price target of CA$38.0 is 12.5% 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.