If BRF (BRFS) can ever get all of its businesses moving in the right direction at the same time, the impact on profit and free cash flow growth will be powerful, but this is what I’d call a “Spartan if”, as the performance of the international operations is still heavily influenced by commodity market moves and government policies. For the here and now, though, management is executing well in Brazil, and particularly on its plan to boost growth and margins through value-added product development.
I was lukewarm on BRF shares back in December, largely because of commodity market risks, and the shares are down about 10% since then, outperforming the iShares MSCI Brazil ETF (EWZ), but underperforming JBS (OTCQX:JBSAY). While I still see risks on the commodity side, and it’s tough to time any meaningful improvement in the Mideast operations, I think the valuation is interesting enough relative to the risk to get more positive.
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