Multi Protein Demand And Value Added Foods Will Drive Long Term Earnings Resilience

Catalysts

About JBS

JBS is a global multi protein food company that processes and sells beef, pork, poultry and value added prepared foods across diversified geographies.

What are the underlying business or industry changes driving this perspective?

• There is an accelerating shift toward value added and prepared foods, including new U.S. pork plants in Iowa and Seara’s expansion in Brazil. This should structurally increase mix toward higher margin categories and support EBITDA and net margin expansion from 2027 onward.
• Global protein consumption growth, supported by rising incomes and substitution from higher priced beef into pork and chicken, positions JBS’ multi protein platform to capture volume and pricing gains across regions, which underpins long term revenue growth and more resilient earnings.
• Geographic diversification across the U.S., Brazil and Australia, combined with counter cyclical cattle and livestock cycles between these regions, is reducing earnings volatility. This should justify higher valuation multiples as return on equity and return on invested capital remain elevated.
• Continuous investments in operational efficiency, integration and innovation, such as modern double shift U.S. pork plants and upgraded Australian and Brazilian operations, are improving cost productivity and utilization. This supports stable to rising EBITDA margins even in tighter livestock supply environments.
• Balance sheet optimization, including very long term local debt at attractive rates, disciplined leverage near 2.5 times and an active buyback and dividend program, enables continued growth CapEx while enhancing per share earnings and return on equity as cash is redeployed from low return uses.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming JBS's revenue will grow by 3.4% annually over the next 3 years.
• Analysts are assuming JBS's profit margins will remain the same at 2.4% over the next 3 years.
• Analysts expect earnings to reach $2.3 billion (and earnings per share of $2.4) by about December 2028, up from $2.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $3.0 billion in earnings, and the most bearish expecting $1.6 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, up from 7.7x today. This future PE is lower than the current PE for the US Food industry at 20.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.06%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current U.S. cattle cycle with historically high cattle prices and tight supply is already pressuring beef margins, and management expects 2026 to remain challenging with female retention and low cow slaughter. A longer or deeper downcycle than anticipated could structurally compress profitability in the key North American beef unit and weigh on earnings and return on equity over the medium term.
• Working capital needs are rising structurally with higher livestock and grain prices, biological asset investment and growth CapEx, with management now guiding to higher cash flow breakeven EBITDA in 2025 and 2026. If input prices remain elevated or volatile, this could consume more cash than expected and restrict the company’s ability to grow revenue while sustaining current net margins.
• The strategy hinges on continued premium pricing and mix improvement in value added and prepared foods at Seara and in U.S. pork and chicken. Any slowdown in consumer demand for higher priced branded products, especially in Brazil’s domestic market and in developed markets facing inflation pressure, could stall margin expansion and limit earnings growth despite volume gains.
• Although geographic diversification across Brazil, Australia and the U.S. is intended to smooth protein cycles, the transcript highlights dependence on strong export demand to absorb higher production from Brazil and Australia. Any long lasting trade restriction, sanitary issue such as avian flu or softening demand in key markets like China and Europe could hurt export pricing, reduce cutout values and pressure EBITDA margins and revenue growth.
• Management is pursuing an aggressive capital allocation agenda with high growth CapEx, increasing biological assets, significant share buybacks and legal settlement cash outflows while keeping leverage around 2.5 times. If returns on new projects, such as the Iowa pork plants and Brazilian processed food expansions, underperform expectations, this could dilute return on invested capital and constrain future earnings growth relative to current optimistic assumptions.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $20.04 for JBS 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 $26.07, and the most bearish reporting a price target of just $16.47.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $92.9 billion, earnings will come to $2.3 billion, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $14.35, the analyst price target of $20.04 is 28.4% 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.