BRF Shares Look Almost Left For Dead, But Sustainable Momentum Is Still Lacking

Very little is going well for BRF S.A. (NYSE:BRFS) these days. High production costs are sapping margins, while high prices seem to be leading to some demand destruction in the Brazilian processed/branded food business. At the same time, new management has yet to give the Street a clear sense of what they will do differently or how they will achieve meaningfully better results than the frustrating run of inadequate profitability seen for many years now.

That gloom is amply reflected in the share price, which has fallen another 30% since my last update, noticeably worse than the weak results of other protein peers like JBS S.A. (OTCQX:JBSAY), Marfrig (OTCPK:MRRTY), Minerva (OTCPK:MRVSY), and Tyson (TSN). At this point, it’s not too much of a stretch to say that the market is valuing BRF as though it has almost no future and/or that Marfrig will make a lowball offer to sweep up the remainder of the company it doesn’t own.

I honestly don’t know what to tell investors at this point. The valuation seems harsh, but results aren’t going to get meaningfully better soon and I don’t see the company generating enough free cash flow to meaningfully reduce its debt for some time. At a minimum, while expectations may be washed out, investors should remember that it can always get worse from here and this is, at best, a high-risk deep value/turnaround story.

 

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BRF Shares Look Almost Left For Dead, But Sustainable Momentum Is Still Lacking