Recent Outperformance Not Helping BRF All That Much

Brazil’s BRF SA (BRFS) has strung together some good quarters, but it hasn’t done the stock much good – the shares are down more than 55% from the time of my last article, underperforming U.S. protein producers like Pilgrim’s Pride (PPC) and Tyson (TSN), as well as fellow Brazilian producers like JBS (OTCQX:JBSAY) and Marfrig (OTCPK:MRRTY). While there are some macro concerns in play, including signs of increased poultry production in exporting countries, I believe BRF’s issues in its halal business and doubts about its long-term strategy in Brazil are also having an impact.

BRF shares do look undervalued, but the Covid-19 outbreak has created new challenges for a company that was only just starting to show real progress on its restructuring efforts. Management needs to sort out the issues in the halal business, but the political nature of those issues will make that challenging, and the long-term FCF margin outlook is still uncertain. While I do think today’s price undervalues the long-term opportunity, I can’t make a compelling argument that every investor really needs to bother with a quasi-commodity company operating largely in emerging markets.

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Recent Outperformance Not Helping BRF All That Much