Momentum Stock: BRF Brazil Food SA
BRF Brazil Food SA (BRFS) is capitalizing off the strong Brazilian economy, recently hitting a new multi-year high after reporting strong Q4 results in late March. With a bullish growth projection and strong industry rank, this Zacks #1 rank stock is a meaty cut for momentum.
Brasil Foods SA, through its subsidiaries, engages in the production and sale of poultry, pork, beef and various dairy products in Brazil and Internationally. The company was founded in 1900 and has a market cap of $18 billion.
Although BRFS has been strong for most of the last 12 months, shares got an extra boost in late March when the company reported strong Q4 results that showcased strong volumes and growing margins.
Revenue for the period was up 21% from last year to $6.4 billion. Earnings also came in strong at 24 cents per share, a huge increase from a penny in the same period last year.
The good quarter was driven by a combination of higher volumes and prices, where prices paid for beef, chicken and pork were all on the upswing on increased global demand related to the economic recovery.
But while rising prices of meat are a good thing higher grain costs pose a threat to the company’s margins. But so far, that threat remains at bay, with gross margin expanding to 28.8% from 23.2% from last year.
BRF also remains focused on its balance sheet, with cash and short-term investments of $1.75 billion and total debt of $4.2 billion, down $604 million from last year. Its debt-to-equity ratio of 40% is well below its peer average of 68.5%.
Although the good quarter and bullish global environment for meat products, estimates have been a bit flat, with the current year sitting at 78 cents and the next-year estimate pegged at 99 cents, a bullish 28% growth projection.
In light of recent gains, the valuation picture looks a bit hot, with a forward P/E of 26X against its peer average 16X.
On the chart, shares had been trending higher for most of the last year before spiking into a new high in late March on the good quarter. Take a look below.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Momentum Trader Service.