Maple Leaf Foods Inc T.MFI

TD

[retiredcf]

Is on their Action Buy List with a $45.00 target. GLTA

Maple Leaf Foods Inc.

(MFI-T) C$25.92

More Price Increases Likely Required to Cover Rising Costs Event

• Reporting Q2/22 results August 4. We now forecast EPS of $0.30 ($0.39 previously) vs. $0.29 last year. Consensus now $0.33 (range: $0.26-$0.38).

• As with other food processors, we see additional price increases being required to pass through higher transportation/fuel and feed costs, although this is unlikely before late-Q3/22; hence, we have also trimmed our forecasts for next quarter. We have trimmed our EBITDA estimates, but left our EPS forecasts unchanged beyond Q3/22, based on updated commodities and forex, as well as expectations that MFI will start share repurchases in Q4/22.

  Impact: NEUTRAL

• Q2/22 processing spreads were ~70% below five-year averages (cutting our EBITDA estimate by $9mm), higher bird costs knocked off $4mm, and rising supply chain/transportation/fuel costs accounted for the remaining ~$2mm-$3mm of the revision. Consequently, we expect an 11.3% Meat EBITDA margin in Q2/22 before additional cost pass-through and mix improvements push it to 13.0%/14.2% in Q3/22 and Q4/22, reaching management's target of "the bottom end" of the 14-16% target range by year-end.

• In PBP, our 3% constant-currency sales growth forecast for Q2/22 may be optimistic, but initial cuts in promo spend should cut PBP losses slightly.

• Reduced near-term profits amidst this highly inflationary environment do not alter our long-term thesis. Construction of the London poultry plant should be completed in a couple of months and the resulting reduction in capex, plus progress toward PBP breakeven, should allow MFI to generate positive FCF and become active on its NCIB by Q4/22, while also deleveraging. After London ramps up to full production, we see Meat margins approaching 16% in 2024, producing ~$350mm in annual FCF.

  TD Investment Conclusion

  At only 8.5x NTM EBITDA, MFI is trading well below its ~9.5x historical average and closest peers. With this low valuation as the backdrop, we expect a material rise in MFI's share price over the next four quarters as earnings recover rapidly, investors gain confidence that Meat margins can reach 14-16%, PBP progresses toward break-even or better by Q4/23, and large strategic capex projects are completed. Combined, these factors are expected to lead MFI to positive FCF by Q4/22 and 9%/11% FCF yields in 2023/2024.

[1condor]

Looks like a decent entry point...however low is not likely in. As far as analysts...most dont have a clue....but they sure get paid well.

[Puma1back]

this stock has such a yo yo like history when reporting quarterly results. It is never just a simple time point, always seeming to disappoint & occasionally surprise.    

[Niceneasydoesit]

They certainly didn't distinguish themselves didn't they. What value are they?