On Friday, RBC Capital Markets adjusted its outlook on Saputo Inc . (TSX:SAP:CN) (OTC: SAPIF), lowering its price target from C$38.00 to C$35.00, while continuing to endorse the stock with an Outperform rating. The revision comes amid challenging market conditions, particularly persistent commodity headwinds that have impacted the dairy sector.
Saputo reported a notable increase in its adjusted EBITDA, which rose by 13% year-over-year to C$417 million, exceeding forecasts by 3%. This growth was primarily driven by strong performances in the Canadian and U.S. markets. However, the company’s International and European segments did not fare as well, with a significant write-down of C$674 million recorded on its UK operations due to ongoing difficult conditions in the region.
In their analysis, RBC Capital acknowledged the positive impact of Saputo’s substantial capital investment program, which exceeds $2 billion and is geared towards enhancing efficiency, productivity, and network optimization. These efforts are beginning to show results, especially in the United States.
Despite the write-down and the less favorable international performance, RBC Capital’s commentary reflected a cautiously optimistic tone. The firm recognized the determination in Saputo’s recent release, which conveyed a balanced view of the company’s situation. While the full benefits of the property and equipment (P&E) initiatives are being offset by broader economic challenges, Saputo’s active Normal Course Issuer Bid (NCIB) was highlighted as a significant indicator of a turning point in free cash flow (FCF). The company increased its NCIB from 2% to 5%, signaling confidence in its financial recovery and future prospects.
The reduction in Saputo’s price target by RBC Capital reflects a more moderate expectation for the company’s recovery trajectory and a corresponding adjustment in valuation multiples. Despite the lowered target, the Outperform rating suggests that RBC Capital still sees potential in Saputo’s stock performance going forward.
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