BRF Brasil Foods SA : Bullish trend could be stopped

09/20/2012 | 10:05am Opinion : Bearish under 37.2 BRL Target price : 32.4 BRL Stop loss: 37.9 BRL

BOLSA DE VALORES DE SAO PAULO Food Processing

BRF-Brasil Foods SA is a food processor in Latin America. The Company raises chickens to produce poultry products. Brasil Foods also processes frozen pastas, soybeans and their derivatives, and distributes frozen vegetables. The Company's core business is chilled and frozen food. The Company has offices in the Middle East, Asia, and Europe.

Analysts polled by Thomson Reuters have downgraded their estimates concerning earnings per share. The financial situation is negative but not risky with a leverage of 2x.

Technically, the security could run out of steam close to the BRL 37.2 resistance. Indeed, the stock is moving in an upward trend in the short term but it could know a halt. In this context, the downward movement could improve and it should expect a return to BRL 32.4. Indicators that show an overbought situation confirm this scenario.

The technical configuration and fundamentals lead us to predict a consolidation phase, at least in the short term. The BRL 37.2 should play its full role and to stop the upward trend initiated in the short term. Therefore, to take advantage of this technical correction, a short position may be opened in the current area to target BRL 32.4. In case of further acceleration, the stop loss will be triggered above the BRL 37.2.

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