Earnings jump and fresh guidance put Fonterra in focus
Fonterra Co-operative Group (NZSE:FCG) has moved into the spotlight after reporting full-year net income of NZ$1.346b and earnings per share of NZ$0.54, alongside new guidance that points to higher FY27 earnings.
Investors have reacted quickly to Fonterra Co-operative Group's results and guidance, with the share price at NZ$5.06 after a 3.06% 1-day and 19.06% 90-day share price return. The 1-year total shareholder return of 49.24% and very large 3-year total shareholder return above 4x suggest momentum has been building over time.
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Fonterra Co-operative Group shares have surged in price, yet the latest intrinsic value estimate sits well below the market price. Is this a healthy premium on fresh guidance, or a gap that needs closing?
Price-to-earnings of 9x for Fonterra Co-operative Group: Is it justified?
Fonterra Co-operative Group trades on a P/E of 9x, while the SWS DCF model points to an intrinsic value of NZ$23.85 per share against the NZ$5.06 last close. This frames the current price as low relative to both earnings and that cash flow estimate.
The P/E ratio compares what you pay today for each dollar of earnings the business produces. A lower multiple can sometimes reflect either a bargain or market caution about how durable those profits will be. For a large dairy exporter with NZ$25.398b in revenue and NZ$1.346b in net income, this kind of earnings-based yardstick helps you weigh the price against a sizeable profit base.
There is also context behind those earnings. Profit has grown 12.1% per year over the past 5 years, the most recent year showed 32.9% earnings growth, Return on Equity sits at 21.5%, margins have improved from 4.2% to 5.3%, and Simply Wall St flags Fonterra Co-operative Group as having high quality earnings. That mix suggests the market is paying a single digit P/E for a business with a track record of profit growth and current profitability metrics that are not weak.
Against peers, the gap is wide. The 9x P/E compares to 15.5x for similar companies in the NZ Food space and 14.8x for the wider Global Food industry. This means the stock trades at a steep discount to sector averages rather than anything close to a premium.
See what the numbers say about this price — find out in our valuation breakdown.
Result: Price-to-earnings of 9x (UNDERVALUED).
Still, a weak global consumer backdrop or any hit to demand in key markets like China and Asia could quickly challenge the current optimism at Fonterra Co-operative Group.
Find out about the key risks to this Fonterra Co-operative Group narrative .
Another view on Fonterra Co-operative Group valuation
On top of the 9x P/E, Fonterra Co-operative Group screens as heavily discounted on the SWS DCF model, which puts fair value at NZ$23.85 per share versus the NZ$5.06 market price. That flags a large gap. Is this a clear mispricing, or is the model being too generous on future cash flows?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day ( check out Fonterra Co-operative Group for example ). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 179 high quality undervalued stocks . If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Clear upside signals or early warning signs for Fonterra Co-operative Group are available in the data for you to review now, helping you refine your own view on the risk reward mix with our breakdown of 2 key rewards and 1 important warning sign
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include FCG.NZ .
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