Bunge Ltd Stock Up 135% – What’s Changed?

After rising almost 135% since its March lows of 2020, at the current price of $71 per share, Bunge Ltd stock (NYSE: BG) seems to have reached its near-term potential. Bunge Limited is an American agribusiness and food company, involved in food processing, grain trading, and fertilizer along with being an international soybean exporter. BG stock has rallied from $30 to $71 off its recent bottom compared to the S&P 500 which increased almost 70% during the same time. The stock was able to beat the broader market over the last few months, with the US government announcing a string of measures along with stimulus packages announced in other economies to keep businesses afloat. As the global economy opens up and supply constraints ease, volume sales are likely to rise in the coming quarters. The stock is already close to 22% above its December 2019 level, and is unlikely to see any major movement anytime soon. Additionally, the new virus strain and lockdown in the UK will limit any major upside in the stock for now. BG’s stock is expected to hover around its current level of $70 in the near-term. Our dashboard Bunge Stock Has Gained 32% Between 2018-End And Now provides the key numbers behind our thinking.

The marginal rise in the stock price between 2018-2019 can be justified by the 6% rise in the revenue per share from $283 in 2018 to $300 in 2019. This was despite the fact that total revenues went down 10% from $45.7 billion to $41.1 billion during the same time. Lower revenue was driven by lower sales in the Agribusiness and Sugar and Bioenergy divisions due to lower supply on account of US-China trade tensions and weather conditions. However, a decline in shares outstanding led to the rise in revenue per share in 2019, thus driving the stock price slightly upward.

The P/S multiple remained stable at close to 0.20x in 2018 and 2019. The multiple dropped sharply in early 2020 following the lockdowns only to recover sharply over the recent months. It currently stands at 0.24x, higher than the levels seen in 2018 and 2019. We believe the multiple will remain at the present elevated level in the near term, with volume sales and margins expected to improve in 2021.

Outlook?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. The lockdowns affected supply chains and increased bottlenecks. This took a toll on consumer spending and delivery of goods, which was reflected in Bunge’s Q3 2020 results. The company’s revenues for the first nine months of 2020 declined by around 5%.

However, there have been signs of lifting of the global lockdowns over recent months. As the global economy opens up and lockdowns are lifted in phases, consumer demand is slowly picking up. Any further recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. With the lifting of lockdowns, reduction of supply bottlenecks is expected to help a company like Bunge, which has a global supply network, to increase its volume. After two years of decline, the company’s revenues are likely to register a modest rise in 2021.

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With investors’ focus having shifted to 2021, the stock has seen healthy growth over recent months in anticipation of strong revenue and margin growth. However, the recent surge in Covid positive cases, a new virus strain coming into the picture, and the re-imposition of lockdowns in the UK could prove to be an impediment in this growth path. If the rise in cases warrant a re-imposition of lockdowns in other major economies as well, then the stock could see a drop. Even in the absence of another lockdown, a major rise in the stock is unlikely after having more than doubled over recent months. BG’s stock is likely to remain around its current level of close to $70 in the near term.

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