It's not easy to earn strong long-term returns from commodity food products. A few companies manage it, Tyson (TSN) being one of them, but it's not the norm and those outlier stories are often driven by some combination of scale leverage and growing premiumization (a shift to higher value-added processed/packaged foods).
That's a risk factor to keep in mind when looking at Mexico's Industrias Bachoco (IBA), but I think there are also positive drivers at play here. Not only does Bachoco run a pretty tight ship where operating efficiency is concerned, but the company also has leverage to positive long-term drivers like organic and inorganic portfolio expansion and increased protein consumption in its primary market as household incomes increase.
I do believe that higher grains prices are a risk, but I also believe they are a well-understood risk and management's efforts on hedging and pricing should reduce the downside risk. If Bachoco can generate long-term revenue and FCF growth on the low end of the mid-single-digits, I believe investors can reasonably expect long-term annualized returns in low-to-mid teens.
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Industrias Bachoco Looks Undervalued On Demand Recovery And Pricing Power
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