Business Trends: Assaí, Carrefour Excel; Cyrela Falters, Vivo Recovers

In a significant move within Brazilian retail, Bradesco BBI now favors Carrefour Brasil (CRFB3) over Assaí (ASAI3).

Bradesco BBI’s strategic analysis highlights limited earnings revisions, lesser impact from rising interest rates, and more exposure to food inflation.

These factors are expected to bring structural changes, reducing the competitive gap between Assaí and Carrefour by the second quarter of 2024.

Carrefour Brasil is now viewed as a more promising investment.

Bradesco BBI Prefers Carrefour Over Assaí as CRFB3 Jumps 3%

Bradesco BBI has shifted its focus in the food retail sector from Assaí to Carrefour Brasil, citing limited earnings revisions, reduced impact from interest rates, and greater exposure to food inflation as key reasons.

This transition is anticipated to narrow the competitive gap with Assaí by the second quarter of 2024.

Although the bank lowered Carrefour Brasil’s target price to R$ 16, suggesting a 54% potential upside, and Assaí’s to R$ 16 with a 50% potential upside, both stocks maintain buy recommendations.

Carrefour Brasil’s stock increased by 3.17% to R$ 10.73. Meanwhile, Assaí saw a slight decrease of 0.44% to R$ 11.25.

Grupo Mateus’ target price also dropped, maintaining a neutral outlook with a 10% potential upside.

Financial forecasts highlight Carrefour Brasil’s attractiveness. The company boasts a P/E multiple of 10.8 times for 2025 and an expected 60% annual EPS growth over 2024-27.

Carrefour’s Atacadão will likely outperform peers in same-store sales this quarter, potentially surpassing Assaí for the first time since Q3 2022.

Projected revenue increases and operational efficiencies for Carrefour Brasil in late 2024 and into 2025 should significantly enhance net income, reaching R$ 2 billion in 2025.

Conversely, Assaí’s revenue growth may less significantly impact its net income due to higher financial leverage.

Rising interest rate expectations have caused year-to-date declines in both stocks, but Carrefour Brasil’s net income forecasts remain unchanged, unlike Assaí’s.

Higher food inflation should favor Carrefour’s Atacadão, showing a 70% correlation with its sales performance.

Morgan Stanley Upgrades Vivo to Overweight

Morgan Stanley analysts upgraded Telefônica Brasil (VIVT3), operating as Vivo, to “overweight” from “equal-weight,” with a target price of $11 for US-listed shares.

This follows a meeting between the US bank’s team and telecommunications company executives.

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Morgan Stanley sees a good entry point, expecting improved free cash flow as fixed revenue growth strengthens the mobile division.

They also view Vivo as a defensive business to navigate Brazil’s macroeconomic challenges.

Telefônica Brasil ADRs rose 2.8% to $8.985. Meanwhile, B3 shares increased 3.18% to R$ 48.96, highlighting the positive performance of the Ibovespa, up 0.64%.

In the sector, TIM Brasil (TIMS3) gained 4.91%. Year-to-date, ADRs have declined about 16%, while São Paulo-listed shares have lost 5.7%.

Cyrela’s Q2 Sales Decline 6% Year-on-Year

Cyrela (CYRE3) reported a 6% year-on-year decline in sales, excluding exchanged units, to R$ 1.71 billion in the second quarter, according to its operational preview.

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Contracted net sales, including exchanges, fell 5% year-on-year to R$ 2.37 billion.

Launches’ general sales value decreased 59% year-on-year for the three months ending in June, totaling R$ 1.04 billion, excluding exchanges.

Including exchanged units, the total launched sales value was R$ 1.46 billion, down 58% year-on-year.

Launches dropped from 17 to 9 between April and June 2023 and the second quarter this year.

Sales velocity (VSO) rose to 52.6%, up 4.5 percentage points from the same period in 2023.

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