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On Monday, JPMorgan issued a downgrade for Gruma SAB de CV (GRUMAB:MM) (OTC: OTC:GPAGF), shifting its stock rating from Overweight to Neutral. The firm also adjusted the price target to Peso390.00, a decrease from the previous Peso430.00. The adjustment comes as analysts at JPMorgan forecast a tempered demand outlook, which they believe will limit the company’s pricing power and potential for short-term profitability surprises. The company, with annual revenue of $6.39 billion and EBITDA of $1.14 billion, maintains a strong financial health score of "GREAT" according to InvestingPro analysis.
According to JPMorgan, while Gruma’s valuation is not considered excessive, it is thought to already account for the expectation that the company will maintain high gross margin levels, currently at 39.14%. This anticipation persists even as demand appears weaker than expected. Despite the downgrade, JPMorgan notes that the tortilla category, where Gruma is a key player, is generally defensive, and the company has seen product mix improvements due to innovation and premiumization, especially in the U.S. retail market. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available through their comprehensive financial analysis tools.
The report further highlights Gruma’s solid earnings per share (EPS) growth, which stands at a 9% five-year compound annual growth rate (CAGR), compared to an 11% CAGR for the broader Mexican consumer sector. Gruma’s stock is trading at a current P/E ratio of 12.58x, which is lower than the 15.3x P/E ratio of the Mexican Consumer sector. InvestingPro data reveals the company has maintained dividend payments for 12 consecutive years, with eight additional ProTips available to subscribers highlighting the company’s financial strength.
The revised price target of Peso390.00 reflects a 9% decrease from the previous target. This change is based on a 3% to 4% reduction in JPMorgan’s earnings before interest, taxes, depreciation, and amortization (EBITDA) estimates for this year and the next. The updated EBITDA estimates incorporate a more conservative view of demand across most of Gruma’s operational regions and account for a higher cost of equity (Ke).
In the broader Mexican food and beverage sector, JPMorgan’s preferences lean towards Coca-Cola (NYSE:KO) FEMSA (KOF) and Arca Continental (AC), respectively.
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