Equity Research 21 June 2019 FOCUS Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 18. Restricted - Internal Americas Agribusiness TSN & JBS: Welcome To A New Era We increase our TSN price target to $100, and upgrade JBS to OW with a higher price target of R$26: Diversified animal based protein companies seem set to benefit most from the worsening African Swine Fever (ASF) situation in China and other countries in Southeast Asia. While we believe the impact in 2019 and early 2020 is likely to be limited, we see incrementally more benefits in the medium to longer term for diversified protein companies like TSN and JBS. Taking a second look at ASF – it seems out of control: Analyzing the most recent ASF outbreaks in China and particularly in Vietnam, we believe that the virus has gone well out of control of local authorities and, as history shows, eradicating the virus is likely going to take years, if not decades. We estimate that the current impact on global animal-based protein supply should be close to 6%, a level not very easy to replace. This “supply shock” will likely hit in the back-half of 2020 and have significant impact on product pricing in the coming years – TSN and JBS with a major footprint in the Americas seem set to benefit most. Don’t underestimate the upside potential from alternative meat: While still an underdeveloped category, the alternative meat space in our view presents plenty of opportunities; new and incumbent players could grab ~10% of the $1.4tn meat market in 10 years. With TSN just announcing a fully plant based and a “hybrid” offering, we believe the company is likely to grab a significant portion of this market potential. JBS, meanwhile, has announced an alternative meat product launch in Brazil and is set to launch a product in the U.S. later this summer. Upbeat message from TSN management at its recent investor day reaffirms our Top Pick investment thesis: While TSN did not update its FY19 guidance and also did not yet provide an outlook for FY20, we believe industry dynamics (particularly on the back of global supply shortage due to ASF in China) are favorable and should allow TSN to deliver strong growth into next year. We believe the impact from ASF in China will be beneficial to the company’s chicken, beef and pork segments in the coming quarters, yet assume some cost pressure in its prepared foods business. JBS to OW as global matters: JBS is the largest global protein company with a major footprint in the U.S., Australia and Brazil, the three largest protein producing countries in the world. Via its subsidiary PPC, JBS operates in Mexico and the U.K. With such a diversified global footprint, we believe JBS is likely to be more immune than others when it comes to trade restrictions and regional headwinds such as crop, weather or raw material availability. It should also prove a beneficiary when it comes to filling the void from ASF in China, as JBS already generates ~15% of revenues in Asia (mainly China). INDUSTRY UPDATE Americas Agribusiness NEUTRAL Unchanged For a full list of our ratings, price target and earnings changes in this report, please see table on page 2. Americas Agribusiness Benjamin M. Theurer +52 55 5241 3322 benjamin.theurer@barclays.com BBMX, Mexico Antonio Hernandez + 52 55 5241 3323 antonio.hernandez@barclays.com BBMX, Mexico Barclays | Americas Agribusiness 21 June 2019 2 Summary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold) Company Rating Price Target EPS FY1 (E) EPS FY2 (E) Old New Date Price Old New %Chg Old New %Chg Old New %Chg Americas Agribusiness Neu Neu JBS SA (JBSS3 BS / JBSS3.SA) EW OW 19-Jun-2019 21.25 16.00 26.00 63 1.68 1.96 17 1.90 2.37 25 Tyson Foods, Inc. (TSN) OW OW 20-Jun-2019 78.63 85.00 100.00 18 6.10 6.10 - 6.86 6.86 - Source: Barclays Research. Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency. FY1(E): Current fiscal year estimates by Barclays Research. FY2(E): Next fiscal year estimates by Barclays Research. Stock Rating: OW: Overweight; EW: Equal Weight; UW: Underweight; RS: Rating Suspended Industry View: Pos: Positive; Neu: Neutral; Neg: Negative Barclays | Americas Agribusiness 21 June 2019 3 EXECUTIVE SUMMARY Upgrading JBS to OW; raising PT for JBS and TSN by 63% and 18%, respectively Diversified animal based protein companies seem s...
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