Citi Upgrades Bachoco (IBA) to Buy

March 4, 2009 9:00 AM EST

Citi upgrades Bachoco (NYSE: IBA) from Hold to Buy, but lowers PT from US$20 to US$16.

Citi analyst says, "We look for a significant operating recovery this year that involves growth on the order of 10% in sales, 115% in EBITDA and a positive net income...The poultry cycle in Mexico is in a surprising recovery phase marked by a more than 20% increase compared to the 4Q08 average. This rebound is based on a combination of continuing strength in demand and the extent to which medium sized producers have been shaken out of the market. As the market leader, Bachoco appears to be capitalizing on this situation. The greatest risk is posed by losses from foreign exchange derivatives, which have totaled P$808 mn to date and could surpass P$1 bn should the peso remain at current levels. However, Bachoco maintains a positive net cash position. Paying down these liabilities would abruptly draw down its excess cash, but without posing risk to its operation...The prospect of a solid operating recovery combined with the degree to which the stock has been punished underpin our new rating. There is a speculative dimension to Bachoco in that it has limited liquidity and is subject to highly volatile business cycles. However, although our estimates are conservative they assume upside potential that should prove compelling to investors seeking deep value alternatives."

Industrias Bachoco, S.A.B. de C.V. is a holding company, with no operations other than holding the stock of its subsidiaries.

Related Categories

Upgrades

Stocks Mentioned

Related Entities

• Citi

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?