National Bank comments Saputo Inc.’s (SAP-T) improvement initiatives are likely to be “challenged” by difficult industry conditions, according to National Bank Financial analyst Vishal Shreedhar.
In a research report released Thursday, he said anticipates the Montreal-based company’s fourth-quarter 2022 results, scheduled to be released on June 9, will be “disappointing,” but he continues to expect improving results through its next fiscal year.
“Following disappointing results last quarter, we upgraded Saputo’s shares to Outperform,” said Mr. Shreedhar. “At that time, we acknowledged that while we were early with the call, we believed that management’s initiatives (pricing, efficiency) coupled with eventual normalization of dairy market conditions would support the shares. Since that upgrade, dairy market conditions have deteriorated further (more drastically than anticipated), coupled with challenging conditions in the stock market.”
For the quarter, he’s projecting revenue of $3.731-billion, in line with the Street’s estimate of $3.734-billion and rising from $3.438-billion a year ago. However, his earnings per share forecast of 22 cents is down from 30 cents during the same period a year ago and below the current consensus forecast on the Street of 25 cents.
“We project an approximate 28-per-cent year-over-year EPS decrease, largely reflecting continuing market challenges in the USA sector and milk intake/margin challenges in Australia; we anticipate year-over-year EBITDA improvements in Canada and Europe (acquisition contribution, pricing initiatives).
“We acknowledge heightened uncertainty with our estimates given meaningful changes in the backdrop associated with the pandemic and related shifts in consumer behaviour as well as heightened cost inflation (labour, transportation, energy, raw materials) and dairy market volatility.”
With that view, Mr. Shreedhar cut his 2022 and 2023 earnings per share projections to $1.23 and $1.69, respectively, from $1.40 and $1.81. Those changes led him to reduce his target for Saputo shares to $31 from $33, below the $35.63 average on the Street.
“While market factors continued to degrade in Q4, particularly in the USA sector, we expect conditions to eventually normalize, coupled with emerging benefits from SAP’s efficiency and pricing initiatives,” said Mr. Shreedhar, keeping an “outperform” rating. “In addition, valuation remains attractive with SAP trading at 17.5 times our NTM [next 12-month] EPS vs. the five-year average of 20.5 times. We anticipate improving performance for SAP through fiscal 2023.”