How does the return of the Batista brothers to JBS (JBSS3) affect the share price?

A JBS (JBSS3)the largest beef producer in the world, intends to replace executives Joesley and Wesley Batista on the company’s Board of Directors. The proposal made by the company must be voted on by shareholders at an Extraordinary General Meeting scheduled for April 26th. With their possible return, the number of seats on the board is expected to increase from 9 to 11.

The “Batista brothers” had been away from JBS management since 2017, when they assumed the payment of bribes and the company’s involvement in corruption, within the scope of Operation Lava-Jato. At the time, the scandal strongly affected not only the meatpacking company’s shares, but also the Stock Exchange in general.

One of the most striking episodes took place on May 18, 2017 and became known as “Joesley Day”. After the leak of conversations between Joesley and the then President of the Republic Michel Temer, in which the leader of the Executive gave approval for the purchase of the silence of the former president of the Chamber, Eduardo Cunha, the Ibovespa fell 8.8%, the biggest collapse in nine years old.

The fear regarding the Batistas even represents a barrier to the company’s entry into foreign stock exchanges. A movement called “Ban the Batistas” seeks to prevent the listing of JBS on the New York Stock Exchange (NYSE) and accuses the company of causing environmental damage and engaging in corruption, in addition to other illicit actions.

Controversial, Batista’s return was “predictable”

Even though the Batista brothers’ history weighs negatively, their return to managing the company is not seen as new. According to Victor Bueno, partner and equity analyst at Nord Research, this was a “predictable” step. That’s why, he says, stocks aren’t responding so negatively to the news. Until 4:45 pm, JBSS3 lost 2.19%, at R$ 21.90, a level they maintained until the close of trading this Wednesday (27).

“They stayed away for 7 years after everything that happened in 2017, with Joesley Day, but they continued to be the main controllers of the company”, says Bueno. “Just as they already did, they will continue to interfere in the company’s decisions. It doesn’t change anything. It’s a bad sign for the market, but nothing surprising when talking about Brazil.”

Independent analyst Mario Goulart also views the issue with a certain neutrality. “They were right to stay away when there was all that chaos with Temer and now that the dust has settled, they are back. Despite all the ethical confusion that surrounds them, there is nothing stopping them. Like them or not, they turned their father’s butcher shop into one of the biggest meatpacking plants in the world,” he says.

Goulart also recalls that even in the United States where, he claims, the market has a more rigorous stance in relation to this type of issue, the Batista brothers returned to the board of Pilgrim’s Pride, a local subsidiary of JBS. For the analyst, the news should not bring major changes in recommendations for the food company’s shares.

Felipe Pontes, from L4 Capital, follows the same line of thought. The expert questions their level of separation from the company’s management, even though in theory, they no longer held management positions seven years ago. “I have serious doubts about the fact that they have withdrawn from any activity one day. We all know how corporate governance works in Brazil and the role of ‘who should be protecting us’, in this lack of protection”, says Pontes.

The analyst also highlights that, operationally, JBS has shown the ability to overcome past adversities, with strong revenue growth in recent years. In other words, regardless of the direct participation of the Batista brothers on the board or not, the vision is that the company managed to expand, profitably, despite having faced difficulties in 2023.

Pontes states that with the official return of the Batista brothers to JBS, a review of the recommendations for JBSS3 would be expected, due to the “previous history of questionable governance”. “However, an experienced analyst should already know that they (Joesley and Wesley Batista) are actually in charge of the company”, says the expert. “At this price level, I would not allocate my clients’ resources to JBS”, he adds.

Ativa Research reinforces the purchase recommendation for the shares and that JBS’s focus today is the dual listing (on B3 and in the USA). “The entry of the Batista brothers does not change our thesis. The company, among the meatpacking companies, is the most diverse we have. Our thesis is based on the company’s operations”, highlights the house.

Frederico Nobre, head of analysis at Warren Investimentos, sees the brothers’ return as negative. However, as the majority of board members remain independent and the main shareholders already exercised influence in the company, the foundations of the thesis should not be changed.

Market recommendations for JBSS3

Hurt by the cycle of lower cattle supply in the USA, JBS presented a negative result of R$1.1 billion last year. Still, the company’s prospects are considered positive by most analysts.

Of the 20 institutions that cover the stock, 17 have a buy recommendation, 3 have a neutral recommendation and none indicate a sell. On average, the target price is R$32.19, which represents a potential increase of 47% compared to the last closing level of R$21.90. The data is displayed on the company’s Investor Relations (IR) website.

Itaú BBA, for example, has an “outperform” recommendation (equivalent to purchase) for JBSS3, with a target price of R$31. In other words, a potential increase of 41.5% compared to Wednesday (27) . According to the institution, the numbers for the fourth quarter of 2023 were below expectations, with the biggest negative impact from the US beef division, but long-term expectations remain “attractive”.

“The capital structure appears robust,” states Itaú BBA. “Overall, we continue to favor JBS in the protein sector, although we recognize that those with a larger coverage universe could potentially shift to names with clearer near-term triggers.”

Genial Investimentos also has a purchase recommendation for JBSS3, with a target price of R$ 30. For the house, the result for the fourth quarter of 2023 was mixed, with the meatpacking company reporting “sequentially worse” profitability, especially in the northern operation. American, but with a higher-than-expected revenue.

Revenue totaled R$96.3 billion in the period, an increase of 3.7% compared to the fourth quarter of 2022. “Looking ahead, we anticipate a gradual and sequential improvement in margins across all segments ex-JBS Beef North America” , says Genial. “We also expect the eventual approval of the process of dual listing of shares in the US, which we consider to be a short-term trigger.”

Nobre, head of analysis at Warren Investimentos, has a buy recommendation for JBSS3, with the expectation that results in 2024 and 2025 will be better than last year. “JBS’s leverage level is controlled (even in an unfavorable cycle) and better than its competitors in terms of financial health,” he says.

Buying opportunity for JBS shares

BTG Pactual also has a buy recommendation, with a target price of R$35. However, the bank reinforces the mixed view that JBS presented a weaker operating result in the latest results, as well as a stronger cash flow. “JBS continues to be our main choice of proteins,” stated BTG, in a report. “We do not believe investors will welcome the fourth quarter 2023 results, but we would buy based on weakness. Some clarification is needed regarding the beef operation in the US.”

Nord does not recommend the purchase of JBSS3 as it sees the company “suffering a lot” in recent quarters due to its large exposure to the American market, which is going through an unfavorable cattle cycle. Today, the slaughterhouse has 80% of its net revenue per product linked to the USA.

“While in Brazil we have a very positive cycle, with greater availability for slaughter, companies pay less for cattle as they have more animals to be sold. And all slaughterhouses benefit from this spread (difference between costs and sales prices)”, says Bueno. “This does not happen with JBS, because the cattle cycle there is unfavorable, the cost is higher and the spread is shorter. There is no visibility in the short term that this will improve,” he says.

The house has a recommendation for Minerva (BEEF3), which has a large part of its operations in Brazil.