On August 2, 2023, Bunge Ltd (BG, Financial) stock experienced a daily gain of 3.95%, with an Earnings Per Share (EPS) (EPS) of 10.19. The question that beckons for investors is whether the stock is fairly valued or not. This article seeks to provide a comprehensive valuation analysis of Bunge (BG). We invite you to delve into the following analysis for a more informed decision.
Company Overview
Bunge Ltd is a leading global agribusiness and food company with a diverse range of operations spanning the farm-to-consumer food chain. Its business segments include Agribusiness, Refined and Specialty Oils, Milling, Sugar and Bioenergy, and Corporate and Other. The Agribusiness segment generates the company's highest revenue. Bunge's current market cap stands at $17 billion, with sales reaching $66.7 billion.
The company's stock price is $112.7, while its fair value, according to the GuruFocus GF Value, is $103.22. This comparison between the stock price and GF Value forms the basis for our in-depth exploration of Bunge's valuation.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from a proprietary method. The GF Value Line on our summary page offers a snapshot of the fair value at which the stock should ideally be traded. It is computed based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- A GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Bunge's stock appears to be fairly valued according to GuruFocus' valuation method. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. If the share price significantly exceeds the GF Value Line, the stock might be overvalued, likely leading to poor future returns. Conversely, if the share price is significantly below the GF Value, the stock might be undervalued, potentially leading to higher future returns. Given Bunge's current share price of $112.7, it appears to be fairly valued.
As Bunge is fairly valued, the long-term return of its stock is likely to align closely with its business growth rate.
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Bunge's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Hence, investors must carefully review a company's financial strength before buying shares. Bunge has a cash-to-debt ratio of 0.48, which ranks better than 50.33% of companies in the Consumer Packaged Goods industry. Based on this, GuruFocus ranks Bunge's financial strength as 7 out of 10, indicating a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those consistently profitable over the long term, poses less risk. Bunge has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $66.7 billion and EPS of $10.19. Its operating margin is 3.37%, which ranks worse than 56.27% of companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks the profitability of Bunge at 6 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Bunge is 14.7%, which ranks better than 73.75% of companies in the Consumer Packaged Goods industry. However, the 3-year average EBITDA growth rate is 0%, ranking worse than 0% of companies in the same industry.
ROIC vs WACC
Another method to determine a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, it implies the company is creating value for shareholders. For the past 12 months, Bunge's ROIC is 9.11, and its cost of capital is 7.44.
Conclusion
Conclusively, Bunge (BG, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is also fair. However, its growth ranks worse than 0% of companies in the Consumer Packaged Goods industry. To learn more about Bunge stock, you can check out its 30-Year Financials here.
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