The stock of BRF SA (NYSE:BRFS, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $5.72 per share and the market cap of $4.6 billion, BRF SA stock is estimated to be fairly valued. GF Value for BRF SA is shown in the chart below.
Because BRF SA is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 11.3% over the past three years and is estimated to grow 10.23% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. BRF SA has a cash-to-debt ratio of 0.34, which is in the middle range of the companies in the industry of Consumer Packaged Goods. The overall financial strength of BRF SA is 4 out of 10, which indicates that the financial strength of BRF SA is poor. This is the debt and cash of BRF SA over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. BRF SA has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $7.7 billion and earnings of $0.377 a share. Its operating margin of 7.83% in the middle range of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks BRF SA’s profitability as fair. This is the revenue and net income of BRF SA over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. BRF SA’s 3-year average revenue growth rate is better than 79% of the companies in the industry of Consumer Packaged Goods. BRF SA’s 3-year average EBITDA growth rate is 38.1%, which ranks better than 90% of the companies in the industry of Consumer Packaged Goods.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, BRF SA’s return on invested capital is 10.70, and its cost of capital is 9.58. The historical ROIC vs WACC comparison of BRF SA is shown below:
In closing, The stock of BRF SA (NYSE:BRFS, 30-year Financials) is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 90% of the companies in the industry of Consumer Packaged Goods. To learn more about BRF SA stock, you can check out its 30-year Financials here.
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