Morgan Stanley Says Rally 'Has Just Begun' for World’s Biggest Meat Seller

(Bloomberg) -- The rally that has sent the world’s largest meat supplier to a record high has room to run as the deadly hog virus sweeping across China boosts the outlook for protein demand, according to Morgan Stanley.

Morgan Stanley raised its recommendation on JBS SA to overweight, equivalent to buy, boosting its price target by 46 percent to 20.50 reais ($5.26). The Sao Paulo-based producer surged as much as 11 percent on Tuesday to 19.98 reais, climbing to an all-time-high for the third straight session.

China has been forced to cull hog herds as the spread of African swine fever continues to rage. Pork production in the Asian country, the top consumer, probably will decline about 30 percent this year, a drop roughly the size of Europe’s entire annual supply, according to Rabobank International. Meat prices and trade volumes -- whether it’s chicken, beef, seafood or even plant-based alternatives -- are likely to rise as a result, boosting revenues of major suppliers.

“African swine fever has sparked a rally across global protein stocks, but it’s not too late to buy in,” Morgan Stanley analysts led by Rafael Shin said Monday in a report to clients. “We think the rally has only begun and that the long-term impacts of ASF are still not understood,” Shin said.

JBS, with beef, pork and chicken operations spanning North America, Europe and Australia, has gained almost 70 percent this year, outpacing a 7.5 percent gain in Brazil’s benchmark index. The stock is down by about 20 percent from its 2009 record when measured in U.S. dollars, and Morgan Stanley says it’s trading at a big discount to American rival Tyson Foods Inc. The Brazilian powerhouse is “best positioned” to capitalize on the swine fever upside, the bank said.

Morgan Stanley Says Rally 'Has Just Begun' for World’s Biggest Meat Seller

“JBS’s combination of category and geographic exposure, scale, capacity utilization, and existing access to the Chinese market sets it apart,” Shin said.

JBS local rivals are also surging on the prospect of improved demand. Brazilian chicken and pork exporter BRF SA rose by as much as 7.9 percent Tuesday, closely followed by beef suppliers Marfrig Global Foods SA and Minerva SA.

Morgan Stanley Says Rally 'Has Just Begun' for World’s Biggest Meat Seller

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