BRF S.A. Boosted By A Strategic Investor, But Operating Conditions Are Challenging

 

I liked the valuation on BRF (BRFS) shares back in March, and the shares have since outperformed (up more than 25% since then, but that outperformance has a great deal more to do with the recent acquisition of BRF shares by Marfrig (OTCPK:MRRTY) than the current fundamentals, as BRF remains pressured by higher production costs and challenging international markets.

I don't see the near-term pressures abating, and BRF is going to be hard-pressed to continue raising prices at the pace of recent quarters (17% to 22%). Likewise, I don't see the international markets getting easier in the near-term.

I do still like the long-term potential of BRF's ongoing turnaround, and the involvement of Marfrig does raise the question (again) of whether BRF could be a merger/takeout candidate. The valuation argument isn't as compelling today, though, and I look it as more of a borderline buy.

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BRF S.A. Boosted By A Strategic Investor, But Operating Conditions Are Challenging