Analyst Note| Rebecca Scheuneman, CFA |
Brazil-based JBS, 80% owner of no-moat Pilgrim’s Pride (which it purchased out of bankruptcy in 2009 for $800 million), has offered to acquire the remaining 20% stake for $26.50 per share. JBS seeks to simplify its corporate structure by delisting Pilgrim’s as a public company, allowing for a reduction in administrative expenses and an increase in operational flexibility. The proposal equates to an $8.4 billion enterprise value, 6.3 times our 2022 EBITDA estimate and 6.5 times that of FactSet consensus. However, we view this as a light offer, particularly when compared against the 9.1 times Sanderson Farms agreed to be purchased for earlier this week by Cargill and Continental Grain Company. We maintain our $32 per share fair value estimate for Pilgrim’s, which implies an enterprise value to EBITDA of 7.5 times and is underpinned by our long-term expectations for 2%-3% annual sales growth and 7%-8% operating margins. Shares of Pilgrim’s popped more than 20% on the news to above $27, suggesting investors also think there could be upside to the offering.