Real’s drop weakens Brazilian companies' earnings in dollars in 3Q24

The depreciation of the real weakened the financial results of Brazilian companies for the third quarter of this year, overshadowing the moderate growth presented in local currency terms. This is the assessment of analysts at Morgan Stanley in a report distributed to clients on Monday, which compared the performance in dollars and local currency of Latin American companies during the last earnings season.

Brazilian companies' dollar-denominated results showed a 2% drop in revenues, a 5% decrease in EBITDA, and a 17% increase in earnings per share (EPS), contrasting with an 11% growth in revenues, an 8% increase in EBITDA, and a 33% jump in local currency. The weak dollar performance amid modest local currency performance was not exclusive to Brazilian companies. According to the American bank, it was a phenomenon throughout Latin America, with countries in the region also struggling with the depreciation of their currencies against the dollar. Companies in the region experienced a 1% drop in revenues, a 1% decrease in EBITDA, and a 20% increase in EPS (excluding Argentina's YPF).

Morgan Stanley's outlook does not foresee improvement for 2025, anticipating headwinds for Brazilian companies due to expectations of prolonged high interest rates. As a result, the American bank is "underweight" (sell) on Brazilian stocks, showing a preference for stocks with better microeconomic indicators, highlighting equities linked to energy, finance, agriculture, and digitalization. Morgan Stanley’s preferred Brazilian stocks are: Petroleo Brasileiro SA PN (BVMF:PETR4 ) Prio SA (BVMF:PRIO3 ) JBS SA (BVMF:JBSS3 )(BVMF:JBSS3) RUMO Logistica Operadora Multimodal SA (BVMF:RAIL3 ) Adecoagro SA (NYSE:AGRO )(NYSE:AGRO) Nu Holdings (NYSE:NU ) LTD BDR (BVMF:ROXO34 ) MercadoLibre Inc (NASDAQ:MELI ) Totvs SA (BVMF:TOTS3 )

The report also highlights the performance of stocks that either exceeded or fell short of market consensus. Morgan Stanley analysts point out that investors did not reward companies that beat estimates while penalizing those whose results fell short. Stocks of companies that exceeded projections by 5% performed in line with the MSCI Brazil index for 3 days, while those that fell more than 5% short of estimates underperformed the benchmark by 280 basis points.

Source: Investing.com