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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.




Sadia S.A. (NYSE: SDA)

Sadia,was established in Brazil in 1944. In Portuguese, the word Sadia means "healthy."  The company has a reputation for products that are nutritious, practical, tasty and safe.  Most of the upper management are members of the Sustainability & Environment Committee.  It is one of the world's leading producers of refrigerated and frozen protein products.  The company  operates as a slaughterer and distributor of poultry and pork products; domestic exporter of poultry; and domestic distributor of frozen and refrigerated meat-based products.  

Sadia has 12 industrial plants in Brazil that produce over  1.3 million tons of chicken, turkey, pork and beef annually.  It also sells frozen fish, pizzas,pasta and desserts.  The company's products are sold in over 70,000 locations in Brazil and to hundreds of other clients around the world.  It has sold nearly $4 billion-worth of product in the last 12 months alone. The company's offerings are winning over a growing number of consumers worldwide and it services hundereds of International  clients,  as far away as Europe (which accounts for 25% of revenues) and the Middle East (23% of revenues).  Export sales grew by more than 45% during the last quarter.

This is a high-growth company that is relatively immune to the business cycle.
Until a few years ago, if international credit markets felt a chill, Brazil was among the first to catch a cold. In the Mexican, Russian and Asian crises of the 1990s, Brazil  followed its emerging market peers into turmoil.  When it was forced to devalue its own currency in 1999, its assets took such a dive, that the central bank had to push its base  interest rate up to 45% a year to stem a run on the currency!  But, today, Brazil is heavily insulated by high foreign reserves, low foreign debt and healthy current account surpluses.  In spite of the recent problems on world credit markets, the talk now is merely of whether the pace of interest rate cuts may have to slow.  Economic growth in Brazil is heading above 5% a year, more than double the average rate of the past two decades.  Credit and domestic demand is booming, as millions of poor Brazilians become consumers for the first time.  And at Sadia, demand for its products is booming too. 
Despite the non-cyclical nature of its industry, Sadia is in the top 5% of stocks traded in the U.S. market, both in terms of earnings growth and technical strength.  It has a market Cap of $3.77 Billion. Dividend yield is 5.9%. P/E is 14 and Return on Equity is a healthy 19.77%.   Much of this success is due to the company's impressive sales growth. Revenue is increasing at 31% per quarter (year over year).   
The most  widely recognized food brand in Brazil, Sadia posted net profits of $56 million, a huge leap from $9.1 million for last year's Q2.  The company's impressive results occurred despite a 9.4% appreciation in the local currency relative to the U.S. dollar.

Some other initiatives that CEO Gilberto Tomazoni cited as aiding Sadia's growth included an expansion at its Lucas do Rio Verde unit. This improvement will make it "one of the most modern plants in the world", The company has also sponsored the Pan-American Games, an alliance that he said "covers the whole Olympic cycle, extending to the 2008 Beijing Games."  The company turned increased sales into improved operating performance, too.  Gross margins climbed to 25.7% from 20.6%, while net margins improved to 5.4%, up from 1.1% a year ago.

Although there is currently little coverage of this company on Wall Street, we expect both individual and institutional investors to take notice and accumulate the stock in the weeks & months ahead. In these volatile times, this is the type of stock that investors are looking for - a company with  exceptional growth prospects and  a low risk profile.
Buy Sadia S.A. (NYSE: SDA) up to $55.00 


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.