TSC Ratings' Updates: Bunge

The following ratings changes were generated on Thursday, Oct. 9.

We've downgraded global agribusiness and food company Bunge(BG) from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins.

BG's very impressive revenue growth of 73.1% greatly exceeded the industry average of 38.8%, appearing to boost EPS, which increased significantly in the most recent quarter compared with the same quarter a year ago. We feel this trend should continue. During the past fiscal year, Bunge increased its bottom line by earning $5.87 vs. $4.25 in the prior year. This year, the market expects an improvement in earnings to $11.15. Bunge's debt-to-equity ratio of 0.61 is less than the industry average, implying relatively successful effort in the management of debt levels. Its quick ratio of 0.41, however, is very weak and demonstrates a lack of ability to pay short-term obligations.

The company's gross profit margin is currently extremely low, coming in at 10.90%, but is and increase from the same period last year. The profit margin of 5.20% trails the industry average. Shares are down by 58.11% on the year, underperforming S&P 500. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.