On Tuesday, BMO Capital Markets adjusted its stance on Saputo Inc. (SAP:CN) (OTC: SAPIF), shifting the rating to Market Perform from the previous Outperform status. The firm also revised the price target for the dairy company's shares to Cdn$30.00, a decrease from the prior Cdn$35.00. This move reflects the analyst's revised expectations for the company's earnings trajectory.
The analyst at BMO Capital Markets expressed concerns over the ability of Saputo to demonstrate a "clean, consistent, and material upward trajectory in earnings." This skepticism is attributed to a series of recent negative developments affecting the company. The analyst suggests that a significant reduction in Saputo's exposure to dairy commodities would be necessary for a more favorable view of the stock.
According to BMO Capital Markets, an increase in branded sales would be essential for Saputo's earnings improvement. However, the firm anticipates that achieving this could be a lengthy process. With the upcoming earnings report, there is a belief that Saputo may not meet expectations for the second fiscal quarter of 2025, which is set to be disclosed on November 7.
The analyst's statement highlighted the importance of monitoring Saputo's potential to mitigate its reliance on dairy commodity markets. The firm's updated outlook indicates caution ahead of the company's earnings report, suggesting that investors may need to brace for potential underperformance in the near term.
InvestingPro Insights
While BMO Capital Markets has adjusted its stance on Saputo Inc., it's worth considering additional financial metrics and insights from InvestingPro to gain a more comprehensive view of the company's position.
According to InvestingPro data, Saputo's market capitalization stands at 267.0 billion USD, indicating its significant presence in the dairy industry. The company's revenue for the last twelve months as of Q2 2024 was 34.86 billion USD, with a revenue growth of 6.57% over the same period. This growth, albeit modest, suggests that Saputo is still expanding its business despite the challenges noted by BMO Capital Markets.
An InvestingPro Tip highlights that Saputo has maintained dividend payments for 27 consecutive years, demonstrating a commitment to shareholder returns even in challenging market conditions. This could be a positive factor for income-focused investors, especially given the company's dividend yield of 0.75% as of the most recent data.
Another relevant InvestingPro Tip indicates that Saputo's net income is expected to grow this year. This projection contrasts with BMO's concerns about the company's earnings trajectory and could provide a counterpoint to the downgraded outlook.
It's important to note that InvestingPro offers additional tips and insights that could be valuable for investors considering Saputo's stock. For a more detailed analysis, investors might want to explore the full range of tips available on the InvestingPro platform.
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