Integration With Viterra Will Expand Specialty Oils And Increase Agribusiness Efficiency

Key Takeaways

• Integration with Viterra will enhance Bunge's value chain and improve net margins through increased efficiencies.
  
• Expansion into specialty oils and strong soybean meal demand will drive growth in North America and the agribusiness segment.
  
• Potential regulatory delays, policy uncertainties, and market challenges could impact synergies, earnings, and revenue predictability for Bunge Global.

Catalysts

Operates as an agribusiness and food company worldwide.

• The integration with Viterra is expected to create a more comprehensive company and enhance Bunge's value chain, potentially leading to increased efficiencies and improved net margins.
  
• Ongoing capital investments and upgrades across Bunge's facilities aim to enhance operational efficiency, leading to higher utilization rates and potentially better earnings.
  
• Upcoming expansion projects, such as the Palm and Specialty Oils facility in Avondale, Louisiana, are expected to grow operations and increase revenue from specialty oils in North America.
  
• Strong global demand for soybean meal due to favorable inclusion rates in feed rations might boost Bunge's revenue from its agribusiness segment.
  
• Continued share repurchases, including the $200 million in Q3, are likely to enhance Bunge's EPS by reducing the number of outstanding shares.

Bunge Global Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bunge Global's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 2.9% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $11.49) by about December 2027, up from $1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2027 earnings, up from 9.9x today. This future PE is lower than the current PE for the US Food industry at 20.5x.
• Analysts expect the number of shares outstanding to grow by 2.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Bunge Global Future Earnings Per Share Growth

Risks

• The recent merger with Viterra is pending a few regulatory approvals, particularly in jurisdictions like Canada and China. Any delays or challenges in securing these could impact the expected synergies and cost savings, potentially affecting future earnings.
  
• There is uncertainty in U.S. policy regarding renewable energy credits and biofuel mandates, which could potentially depress demand for soybean oil from fuel customers, affecting revenue and earnings from this segment.
  
• The sale of the noncore sugar and bioenergy joint venture in Brazil resulted in a loss of income that was previously part of the earnings outlook, which could affect overall profitability.
  
• Operational challenges in regions such as North America and Europe, as seen with lower results in core segments, could indicate a risk of stagnating or declining margins if market conditions worsen, directly affecting net margins.
  
• There are concerns about global market volatility, particularly in crush margins and meal demand, pressured by geopolitical developments or changing trade policies, which would impact revenue predictability and profitability.

Valuation

• The analysts have a consensus price target of $107.63 for Bunge Global 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 $116.0, and the most bearish reporting a price target of just $90.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $60.0 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 5.9%.
• Given the current share price of $81.27, the analyst's price target of $107.63 is 24.5% 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.