JPMorgan Upgrades BRF On Weak Market Expectations

Following the pullback in BRF SA (ADR) BRFS shares, JPMorgan’s Pedro Leduc believes investors are “no longer paying in advance for an export division with less volatile margins.”

Leduc upgraded the rating on the company from Neutral to Overweight, with a price target of R$57.

Stock Has Upside

“Stock is back to the 2010 valuation levels when Sadia+Perdigao merger permission became uncertain—in other words, back to before cultural and structural business improvement prospects started being imbedded into BRFS3 multiples,” the analyst pointed out.

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However, Leduc also believes weak short-term results are now widely expected for the company, although some signs of improvement are expected by the year end.

Given that the stock is expected to have 30 percent upside potential, Leduc named BRF JPMorgan’s top pick within the Brazilian Food & Beverages space.

Catalysts

According to the JPMorgan report, there are three potential catalysts for the stock, including a potential easing of corn prices in Brazil or a rise in Chicago, both of which could prove beneficial for BRF.

In addition, there already are signs of recovery in the poultry export prices in Brazil, while signs of macro improvement suggest that there could be a consumer recovery in 2017.