Alpargatas stock rating upgraded by UBS on strong margins and dividends

UBS upgraded Alpargatas SA (ALPA4:BZ) to Buy, raising its price target to R$12.00 from R$10.50, citing the Brazilian footwear company's successful domestic streamlining expected to drive EBITDA margins to 22.4%-23.1% through 2027. The upgrade also reflects a clearer path to international profitability, with a new U.S. distribution agreement projected to lift international EBITDA margins from 1.4% to 10.2% by 2027, alongside compelling dividend prospects including a 14% next-twelve-month yield. Notably, UBS's 2025-2027 EBITDA forecasts are 1-10% above consensus, signaling a more optimistic outlook on Alpargatas' strategic direction and potential value from its Rothy's business.

Analysis

UBS has upgraded Alpargatas SA (ALPA4:BZ) to Buy from Neutral, increasing its price target to R$12.00, based on a strengthening operational and financial outlook. The core of the thesis rests on the success of the company's domestic streamlining strategy, which is projected to drive EBITDA margins to 22.4% in 2025 and 23.1% by 2027. Concurrently, a new U.S. distribution agreement provides a clearer path to international profitability, with UBS forecasting international EBITDA margins to expand dramatically from 1.4% in 2025 to 10.2% in 2027. This bullish stance is further supported by a compelling capital return profile, highlighted by a projected 14% next-twelve-month dividend yield following a proposed capital reduction. Notably, UBS's EBITDA forecasts for 2025-2027 are 1%, 8%, and 10% above consensus, respectively, indicating a significantly more optimistic view than the broader market ahead of the company's Investor Day on September 4, where further strategic details are expected.

Key Decisions for Investors

• Investors may consider the upgrade a strong positive signal, supported by the dual catalysts of domestic margin recovery and a clearer path to international profitability.
• The upcoming Investor Day on September 4 is a critical event to watch for validation of UBS's above-consensus forecasts and the new strategic direction.
• While the outlook is compelling, it is crucial to monitor the execution of the U.S. distribution agreement and the sustainability of the projected 14% dividend yield, as these are key pillars of the investment thesis.