The world's largest meat packer JBS SA (BSP:JBSS3, Financial) just had a great quarter, but the stock has room to run. The stock has been hampered by an abundance of bad news, but we think the company can get through this.
The Brazilian meat packer's stock trades for 30 real ($5.72), there are 2.59 billion shares and the market cap is 77.7 billion real ($17.77 billion). It takes 5.26 reals to buy one dollar. The dividend is 3.31%.
The first quarter of 2021 was very favorable. Sales were up 33.2% to $13.7 billion. Net income was 2.046 billion reals versus a loss of 5.933 billion reals. All divisions were up big: JBS Beef, Pork, Pilgrim's Pride, Seara and Brazil. JBS owns 80% of Pilgrim's Pride Corp. (PPC, Financial), which is worth over $4 billion.
JBS has grown, in part, through mergers and acquisitions. To fund this growth, the company took on quite a bit of debt, but has been paying it down. Cash on hand is 10.2 billion reals, receivables is 15 billion reals and inventories is 21 billion reals. Payables are 22 billion reals and debt is 69 billion reals. Management has done a good job buying back shares at cheaper prices. Around 3.9 billion reals' worth of shares were bought back this year. S&P gives the debt a BB+ rating, which I agree with.
JBS bought out European-based Vivera, a plant-based meat company, for 341 million euros ($416.9 million). This is why I don't like Beyond Meat (BYND, Financial) and other plant-based meat companies. There are no barriers to entry. JBS already has the production know-how, marketing and ability to finance.
What's funny is there is not as much research on JBS as you'd think. Morgan Stanley, Morningstar and Credit Suisse offer nothing.
Corn costing $7 a bushel is going to drive meat prices higher. JBS thinks this trend is here to stay. Since the industry has consolidated into a handful of players, the big guys can sustain higher grain prices.
What has held the stock back is an abundance of bad news over the years. Principal shareholders have been caught up in a bribery scheme named Operation Car Wash in Brazil, which resulted in several executives and politicians going to jail. Of course, there were many deaths in meat packing plants last year due to Covid. More recently, JBS has received bad press with sourcing cattle from cleared forest in the Amazon and slave labor.
JBS's stock has several reasons it could rise. One is a spinoff of Pilgrim's and its U.S. operations. The second is continued sales and profit growth. The third is the attractiveness of the dividend in today's low-interest rate world. Sure, there's a lot of bad news about JBS, but the fact of the matter is that it's the second-largest food company in the world after Nestle (NSRGY, Financial) and people have to keep eating.
Disclosure: We own shares.
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
