JBSS3 BZ

Publicly traded companies mentioned herein: JBS SA (JBSS3 BZ), Pilgrim’s Pride Corp (PPC), Sanderson Farms Inc (SAFM), Tyson Foods Inc (TSN), YPF SA (YPF)

Highlights

The presenter is long shares of Brazil’s JBS SA (JBS) and thinks the risk/ reward is favorable at 7.20 (BRL). Given two failed IPO attempts within the past 18 months, due primarily to the risks surrounding the family-owned company, the “dislocation” at this time is substantial. JBS is the world’s largest meatpacking company; beef makes up 57% of sales, followed by poultry (25%), and pork (12%). It is important to note that 80-90% of its assets are outside of Brazil, and 85% of EBIT is derived from these assets. Taking a step back from the scandals surrounding Wesley and Joesley Batista, who control and run the company, he said it’s important to evaluate four key issues: 1) whether JBS generates real cash flow; 2) where the fine(s) will be levied (on JBS or the holding company); 3) if there are “more shoes to drop”; and 4) once the company emerges - if it can - will the brothers be involved? At present levels, the stock is trading at just 5x (EV/EBITDA) 2017 Street estimates, and if three out of the four issues have positive resolutions/ conclusions, then shares are likely to trade back up to the 11-12 BRL range. Longer-term, the presenter sees the potential for the stock to be worth 15+, and said M&A cannot be ruled out.