The Motley Fool

Why Saputo (TSX:SAP) Stock Fell 12% in June

Will Ashworth | July 3, 2019| More on:

Image source: Getty Images

Heading into the second half of 2019, Quebec-based dairy producer Saputo (TSX:SAP) is flat on the year thanks to a terrible June, which saw it lose 12% of its value. 

The major culprit? It announced fourth-quarter results that were well below analyst expectations. 

In the fourth quarter, Saputo’s revenues were $3.2 billion — 18% higher than a year earlier thanks to $385 million in acquisitions during fiscal 2018. On the bottom line, Saputo had adjusted earnings per share of $0.32, $0.03 lower than a year earlier. 

Analysts were expecting it to generate $3.3 billion in revenue with adjusted profits per share of $0.38. Saputo missed both badly. 

For the entire year, Saputo had revenues of $13.5 billion — 17% higher than a year earlier — with adjusted earnings per share of $1.59 — $0.21 lower than in fiscal 2017. 

As a result of the company’s miss, CIBC analyst Mark Petrie cut his price target on the stock by $4 to $43, reducing its potential upside to 9%. The median target price for Saputo stock is $47, which was Petrie’s previous target. 

“Though commodity prices have generally rebounded nicely in 2019, Saputo is seeing issues across geographies that limit the benefit. In Canada and the U.S., lower volumes and increased competitive pressures are hurting realized margins,” Petrie wrote June 6. 

The analyst believes Saputo stock should be trading at 21 times the average of its 2020 and 2021 estimated earnings. 

Although the company has made more than $3.3 billion in acquisitions in the past 24 months, some of them are bolt-on deals and others more transformative, investors are likely going to have to be more patient before seeing the upside from all of this deal-making.

5 Canadian Growth Stocks Under $5

We are giving away a FREE copy of our "5 Small-Cap Canadian Growth Stocks Under $5" report. These are 5 Canadian stocks that we think are screaming buys today.

Get Your Free Report Today

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in the companies mentioned. Saptuo is a recommendation of Stock Advisor Canada.

 

 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.