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On Thursday, UBS began coverage on Suzano Papel & Celulose (SUZB3:BZ) (NYSE: SUZ), issuing a Buy rating and setting a price target of R$73.00. The firm highlighted Suzano as a leading choice within the Latin American Paper & Pulp (P&P) sector and the broader Brazilian Materials market.
UBS cited several factors contributing to Suzano's favorable outlook, including the company's position at a low point in the industry cycle, increasing pulp industry utilization rates, and the conclusion of a capital expenditure cycle. The company maintains impressive gross profit margins of 42.19% and generated $684.5 million in levered free cash flow over the last twelve months. Additionally, UBS expects an increase in EBITDA due to the ramp-up of the company's projects, attractive free cash flow yields, and ongoing debt reduction efforts.
The research firm anticipates that Suzano will trade at a multiple of 5.3 times enterprise value to EBITDA for 2025 and generate approximately 10% free cash flow yields, which is projected to improve to -18% by 2026. UBS's analysis suggests that the market has not yet fully priced in the potential for a cyclical reversal, which could lead to significant value creation for Suzano.
While UBS acknowledges the potential risks associated with Suzano's strategy of international expansion, the firm does not foresee any short-term moves that could significantly undermine the positive thesis established for the company. InvestingPro analysis suggests the stock is currently undervalued, with additional metrics and insights available in the comprehensive Pro Research Report, part of the coverage of 1,400+ top stocks. With these considerations, UBS has positioned Suzano as a top pick in the sector with a strong Buy recommendation.
In other recent news, Suzano S.A. has received a positive outlook revision from Fitch Ratings, affirming its Long-Term Foreign Currency and Local Currency Issuer Default Ratings at 'BBB-'. This upgrade reflects Fitch's expectations for Suzano's net leverage to decrease significantly by 2026, supported by strong operating cash flow. Suzano's expansion in the U.S. paperboard market, with the acquisition of two industrial assets, has added approximately 420,000 metric tonnes to its production capacity. Fitch projects Suzano's EBITDA and cash flow from operations to reach $4.7 billion and $2.6 billion respectively in 2025, with further increases expected in 2026.
Additionally, Suzano plans to increase the prices of eucalyptus pulp in Asia, North America, and Europe starting from February, as reported by Reuters. The price hike will be $20 per metric ton in Asia and $60 per metric ton in Europe and North America. These changes will impact all buyers of Suzano's eucalyptus pulp in these regions. The company's significant forestry holdings and low-cost production structure further bolster its investment-grade credit profile, as noted by Fitch. Suzano's current cash position is robust, covering debt maturities up to the end of 2026.
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