Raízen's stock (RAIZ4) reached historic lows recently, closing at R$ 1.69 on February 5, 2024, after falling 7.65% during trading hours. This drastic drop has raised considerable concern among investors, with the company grappling with significant financial pressures.
The decline puts Raízen among the biggest losers on the Ibovespa, which itself decreased by nearly 8.87% during the same trading session. Market analysts attribute the precipitous fall to various factors, including high leverage and bleak earnings forecasts.
According to financial reports, Raízen's stunning stock tumble can be linked to the company's struggling margins in fuel distribution and reduced forecasts for sugar cane production. The outlook for the upcoming 2025/26 harvest anticipates only 79 million tons of sugarcane, considerably influencing the company's profitability.
On February 6, Citi bank issued a revised price target for Raízen’s stock, cutting it from R$ 4.50 to R$ 3.50, signifying potential growth yet reflecting cautious investor sentiment. Citi maintained its recommendation for buying the stock, even amid this significant cut, noting potential price appreciation of up to 107.1% from its current value.
Analysts Gabriel Barra and Pedro Gama relay their concerns, stating, “Esperamos que a Raízen imprima uma geração de Fluxo de Caixa Livre (FCF) positiva apenas na safra 2026/2027,” highlighting the company's anticipated struggles to generate positive cash flow until at least the 2026/2027 harvest season.
Compounding Raízen's challenges is its substantial debt burden. By the end of the second quarter of 2025, the company reported total liabilities of R$ 49.7 billion, with only 23% of this amount maturing shortly. Notably, 65% of this debt is denominated in foreign currencies, exposing Raízen to additional risks tied to currency fluctuations.
Meanwhile, the control company, Cosan (CSAN3), has faced its own financial trials but found some relief by liquidizing part of its significant investments, including its stake in the miner Vale (VALE3) for approximately R$ 9 billion. Such moves, though beneficial, do not erase the nagging concerns surrounding Raízen's financial structure. It remains to be seen how effective these strategies will be as the company prepares to announce its third quarter earnings on February 14, 2024.
Raízen also noted administrative shifts, indicating Wellington Management Group LLP’s acquisition of 10.84% of its preferred shares, totaling approximately 147.35 million shares. Such moves by institutional investors might spark renewed interest or concern depending on their future actions within the market.
Overall, with the backdrop of Brazil's volatile economic environment, fueled by rising Selic rates, Raízen’s current situation poses significant challenges not only to its stock price but also to its long-term operational viability. Investors continue to watch closely, debating if recovering margins, especially with anticipated price increases for sugar and ethanol, will outpace the hurdles posed by their current financial picture.
The impacts of these developments are not isolated; they resonate across the market, reflected by the contrasting performance of competitors like São Martinho (SMTO3). Analysts remain cautious yet constructive, reiterative of the broader industry narrative, heavily influenced by global market conditions.