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JPMorgan Chase Upgraded Bunge Rating to ‘Overweight’

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Price movement of Bunge

Bunge (BG) has a market cap of $7.3 billion. BG rose by 7.7% to close at $51.46 per share as of February 12, 2016. The price movements on weekly, monthly, and year-to-date (or YTD) bases are -13.4%, -20.7%, and -24.6%, respectively.

Technically, the stock has broken the support and is trading below all moving day averages. Currently, BG is trading 13.1% below its 20-day moving average, 18.4% below its 50-day moving average, and 31.7% below its 200-day moving average.

The iShares Global Energy ETF (IXC) invests 2.4% of its holdings in Bunge. The ETF tracks a market-cap-weighted index of global energy companies. The YTD price movement of IXC is -9.2% as of February 11, 2016.

The AlphaClone Alternative Alpha ETF (ALFA) invests 1.1% of its holdings in Bunge. The ETF tracks an index that aims to deliver outperformance by mimicking hedge funds’ positions in US equities. The index relies on lagged published holdings and can be long and short.

The market cap of Bunge’s competitors are as follows:

  • Archer-Daniels Midland (ADM) — $19.3 billion
  • BRF SA (BRFS) — $11.1 billion
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JPMorgan Chase upgrades Bunge

JPMorgan Chase has upgraded Bunge from “neutral” to “overweight.” It reduced the price target to $57 from $61 per share.

Performance of Bunge in fiscal 4Q15 and fiscal 2015

Bunge reported fiscal 4Q15 net sales of $11,133.0 million, a fall of 15.9% compared to net sales of $13,231.0 million in fiscal 4Q14. Sales of agribusiness, edible oil products, milling products, sugar and bioenergy, and fertilizer fell by 15.2%, 10.6%, 17.6%, 27.0%, and 16.5%, respectively, in fiscal 4Q15 compared to fiscal 4Q14.

Its net income and EPS (earnings per share) rose to $188.0 million and $1.30, respectively, in fiscal 4Q15, compared to -$62.0 million and -$0.43, respectively, in fiscal 4Q14.

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Fiscal 2015 results

In fiscal 2015, Bunge reported net sales of $43,483.0 million, a fall of 23.9% YoY (year-over-year). The company’s cost of goods sold as a percentage of net sales fell by 1.1%, and its segment EBIT (earnings before interest and taxes) rose by 30.5% in fiscal 2015. It reported a gain on sales of Canadian grain assets of $47.0 million in fiscal 2015.

Its net income and EPS rose to $738.0 million and $5.07, respectively, in fiscal 2015, compared to $467.0 million and $3.17, respectively, in fiscal 2014.

Meanwhile, its cash and cash equivalents rose by 13.5%, and its inventories fell by 20.1% in fiscal 2015. Its current ratio fell to 1.48, and debt-to-equity ratio rose to 1.7 in fiscal 2015 compared to a current ratio and debt-to-equity ratio of 1.5 and 1.5, respectively, in fiscal 2014.

The PE (price-to-earnings) and PBV (price-to-book-value) ratios of Bunge are 17.2x and 1.3x, respectively, as of February 12, 2016.

Projection

Bunge has made the following projections for fiscal 2016:

  • In agribusiness, it expects results in oilseeds and grains to be largely driven by its South American operations.
  • In food and ingredients, it expects higher results by ~$50 million of performance improvement-related benefits and from acquisitions.
  • In fertilizer, the farmer economic conditions have improved in Argentina, and the removal of export taxes on grains have resulted in a rise in sales.
  • In sugar and bioenergy, it expects earnings and cash flow growth from hedge sugar and Brazilian ethanol.
  • It expects depreciation, depletion, and amortization of ~$550 million.
  • It expects capital expenditures of ~$850 million, which includes $150 million of investments carried over from 2015.
  • It expects a tax rate in the range of 25% to 29%.
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