Headquartered in Itajai, Brazil, BRF S.A. (BRFS) is the world’s largest chicken exporter. The company is one of the largest publicly traded concerns in Brazil. However, BRFS’ shares have been under pressure since last year due to rising meat costs, import embargoes, and domestic instability. In addition, declining per capita income and rising unemployment in Brazil have impacted BRFS’ operations.

For the better part of last year, China and Russia had embargoes and bans on meat imports from Brazil, which affected BRFS’ profit margins. Furthermore, several European countries boycotted Brazilian brands, including BRFS, in protest of the nation's deforestation of the Amazon rainforest.

Consequently, BRFS’ shares have slumped 20.2% in price over the past year and 14.9% year-to-date.

Here is what could shape BRFS’ performance in the near term:

Bleak Earnings Growth Prospects

Analysts expect BRFS’ revenues to rise 14.6% in the about-to-be-reported quarter, 8% in the current quarter, 17% in fiscal 2021, and 5.9% in the current year. However, the Street expects the company’s EPS to decline 66.7% in its fiscal 2021 fourth quarter (ended December 31, 2021) and 109.1% in fiscal 2021. In addition, analysts expect the company’s EPS to decline at a 7.6% rate per annum over the next five years.

Low Valuation

In terms of forward Price/Sales, BRFS is currently trading at 0.31x, which is 78.9% lower than the 1.46x industry average. The stock’s forward EV/EBITDA and Price/Cash Flow multiples of 6.56 and 4.71, respectively, are significantly lower than the 12.56 and 14.75 industry averages.

In addition, BRFS’ 0.75 forward EV/Sales ratio is 61.2% lower than the 1.94 industry average. Also, the stock’s 12.75 forward EV/EBIT multiple compares with the 16.79  industry average.

POWR Ratings Reflect Uncertainty

BRFS has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Growth, Momentum, and Stability. BRFS’ trailing-12-month revenues increased 23.6% year-over-year. However, the company’s trailing-12-month net income declined 64.8% year-over-year, justifying the Growth grade.

BRFS is currently trading below its $3.91 and $4.48 respective 50-day and 200-day moving averages, indicating a death cross downtrend, and justifying the Momentum grade. In addition, the stock’s relatively high 1.22 beta is in sync with the Stability grade.

Among 86 stocks in the Food Makers industry, BRFS is currently ranked #70.

Beyond what I have stated above, view BRFS Ratings for Value, Sentiment, and Quality here.

Bottom Line

BRFS is expected to make a strong comeback in 2022, with China and Russia resuming Brazilian meat imports late last year. In addition, BRFS has been taking steps to increase its market reach by signing a memorandum of understanding with a Saudi Arabian sovereign fund last month and is planning one of the biggest share sales, seeking to raise up to $1.4 billion. However, Brazil’s domestic instability is a cause for concern. Thus, we think investors should wait until the Brazilian markets stabilize before investing in BRFS.

How Does BRF S.A. (BRFS) Stack Up Against its Peers?

While BRFS has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, HF Foods Group Inc. (HFFG), Grupo Bimbo S.A.B. de C.V. (GRBMF), and JBS S.A. (JBSAY), which have an A (Strong Buy) rating

BRFS shares were trading at $3.48 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, BRFS has declined -14.91%, versus a -4.03% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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