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African swine fever boosts JBS stock

African swine fever has forced China to cull hogs and disease continues to spread.

by Vinícius Andrade and Gerson Freitas Jr.

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% to 20.50 reais ($5.26). The Sao Paulo-based producer surged as much as 11% 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% 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% this year, outpacing a 7.5% gain in Brazil’s benchmark index. The stock is down by about 20% 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.

“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% Tuesday, closely followed by beef suppliers Marfrig Global Foods SA and Minerva SA.

--With assistance from Gerson Freitas Jr..

To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net ;Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net ;James Attwood at jattwood3@bloomberg.net Millie Munshi, Reg Gale

© 2019 Bloomberg L.P

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