MercadoLibre stock target lowered at JPM on expected Q3 EBIT miss

Investing.com -- MercadoLibre stock target lowered at JPM on expected Q3 EBIT miss

JPMorgan has trimmed its price target on MercadoLibre to $2,600 from $2,700, citing competitive pressures in Brazil and an expected earnings miss for the third quarter.

The bank maintained its Neutral rating on the stock.

“We recap recent developments in the Brazilian e-commerce competitive environment, which reinforce our view that growth should come at a higher cost to MELI in the coming years,” JPMorgan analysts wrote.

They noted this outlook contrasts with the Bloomberg consensus, which assumes margins expanding by 100 to 130 basis points over the next two years.

Competition from Amazon and Shopee is said to remain intense. JPMorgan pointed out that Amazon has stepped up its efforts, with new logistics facilities, pick-up locations, and a recently announced promotion that waives Fulfillment by Amazon (FBA) fees for three months.

Meanwhile, “Shopee’s delivery times are improving with investments in logistics, fulfillment centers and cross docking stations,” the analysts said.

The bank noted that Shopee’s monthly active buyers grew more than 30% year-on-year in the second quarter, supported by lower logistics costs and stronger brand engagement.

For the third quarter, JPMorgan expects MELI to post revenue of $7.44 billion, about 3% above consensus, helped by strong gross merchandise volume in Brazil.

But it forecasts EBIT of $750 million, below the $811 million consensus, with margins slipping to 10.1% on logistics spending and currency weakness in Argentina. Earnings are estimated at $477 million versus $551 million expected.

“We do not see the short-term margin weakness as some one-off… but rather as a mid-term trend of higher reinvestment to cope with a more intense competitive environment in Brazil,” JPMorgan concluded.

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