Not even Luiza Trajano’s ‘meat meat’ was enough to save Magazine Luiza (MGLU3) from losses in 2Q22; learn about cheaper stock and with ‘fat’ dividends to buy in place of the retailer

This past Thursday (11th), the Magazine Luiza (MGLU3) released its results for the 2nd quarter of 2022. But, unfortunately, not even the “yummy meat” announced by Luiza Trajano to make consumers return to stores managed to save the retailer.

The video recorded by the businesswoman a month ago only confirmed what was already expected by the market: another quarterly loss. The Magalu had loss of BRL 135 million in 2Q22, reversing the net income of R$9.5 million obtained in the same period of the previous year.

As a result, MGLU3 stocks reacted lower. The papers closed the trading session falling almost 8%, at R$ 3.04. Year-to-date, the retailer has lost more than 86% of its market value.

Is this the “end” of Magazine Luiza’s actions?

Well, Magazine Luiza has already started the year 2022 with the “left foot”. the scenario of high interest it’s from runaway inflation is the main reason behind the reported result. And retailers are the ones that suffer the most in this context.

The monetary tightening erodes the purchasing power of consumers, who stop going to stores due to lack of available cash. It is no wonder that not only Magalu, but American (AMER3) and Via (VIIA3) have also had weak results this year, due to the macroeconomic scenario.

But Magazine Luiza’s situation goes a little further than that. More than the unfavorable economic conjuncture, the retailer also deals with other factors that are playing against its performance and causing the action to be “pierced”.

Who believes this is not me, but yes Fernando Ferrer, an equity analyst at the country’s largest independent financial analysis house. In his view, the MGLU3 share is no longer worth it and it’s time for investors to put Magalu aside.

Although the retailer has already been a successful case of the exchange, having valued more than 91,300% in 5 years, the truth is that today she is more of an “ugly duckling”. And if you continue to invest in it, you will be “burning money” In the purse.

Instead of investing in Magazine Luiza, the analyst is recommending that investors bet on a cheaper stock with the potential to distribute “fat” dividends this year.

Stay with me and I’ll explain in more detail why this analyst no longer recommends investing in Magalu’s stock, and which stock he recommends buying instead of the retailer.

Magalu ‘melted’ 86% in 2022, but could fall further – see 3 reasons to give up the MGLU3 action

For Fernando Ferrer, it’s time to give up the MGLU3 action and seek profits with the action of a more resilient, cheaper company with “fat” dividends on the way. In his analysis, despite the retailer having asked for 86% of its value this year, there is still more to come.

And, to explain his point of view, he quoted 3 reasons to believe that Magalu can fall even further. Below you can see what they are:

1. Fierce competition

First, Fernando highlights that competition around Magazine Luiza became fierce. Now, in addition to national players such as Americanas and Via, the retailer is also having to deal with international competitorswhich have become fond of Brazilians.

I’m talking about companies like shopee, Shein and amazon. They very quickly won over consumers by offering popular prices, as well as often offering cumulative discount coupons and free shipping.

In view of this, Magazine Luiza has faced difficulties in passing on its costs to consumers and having a better result.

“Even after the sharp drop in shares, the challenging scenario should put even more pressure on the company’s results, making the most expensive valuation and making the action is less attractivein our view”, explains Fernando Ferrer.

2. Stock more expensive today than in December 2021

How can a company that has lost more than 86% of its market value this year be more expensive today than in December last year? I know it may sound strange, but this is the case with Magazine Luiza. I explain:

To reach this conclusion, Fernando Ferrer analyzed the multiple Price over Profit (P/L) of the company. By studying the chart below, the analyst concluded that, despite the indicator having fallen throughout 2021, it made a quick jump in 2022, making it the most expensive in the one-year window:

In addition, Ferrer points out that Magazine Luiza also no longer falls under the name of an asset of “quality” and therefore no longer makes sense in his recommended portfolio strategy, which seeks assets with growth potential, profitability and good corporate governance.

3. Deceleration of e-commerce

Finally, Fernando highlights that the e-commerce slowdownas a result of the monetary tightening, strongly impacted Magazine Luiza’s revenue this year.

Although the company has doubled in size in the last 2 years, totaling sales of R$56 billion in 2021, and having tripled e-commerce, reaching R$40 billion in online sales and 200 million items sold, the game turned.

According to the analyst, all this growth was not accompanied by an increase in profitabilityevidencing the slowdown in the consumption of electronics and durable goods as a whole, in addition to the loss of vigor of physical storeswhich have historically been driving the company’s profitability.

Since the stores were an important vector for Magazine Luiza, the dramatic reduction in sales through this channel led to a significant drop in margins from the retailer. And that makes Magalu become a even more expensive deal.

Discover the cheap stock with ‘fat’ dividends to buy in place of MGLU3

Now comes the most interesting part of it all. After you’ve seen the 3 reasons why Fernando Ferrer doesn’t see more potential in Magazine Luiza’s actions, it’s time to get to know an action that really pays off.

This is an action by the electricity distribution, with operations in Brazil, Peru and Colombia. In the analyst’s view, this company is better prepared to face the current market context, as it is in a resilient and predictable business.

In case you didn’t know, the energy sector stocks are usually the most sought after by investors for precisely this reason. After all, if there is revenue predictability, the payment of “fat” dividends is almost certain.

And that is precisely what this action recommended by the analyst offers: in addition to being the cheapest among its peers, it is also projected to distribute “fat” earnings in 2022, with dividend yield estimated at up to 5.5% this year.

In a free report, Fernando Ferrer reveals the stock ticker of this company and all the investment rationale behind it. There, he also explains why he believes that exchanging Magazine Luiza’s share for one in the energy sector is more advantageous for his assets.

Since it made the recommendation on May 11, the action of the energy sector company in question has already appreciated about 11%. However, the analyst believes there is room for more, given that the fair price of the share would be R$33, and today it costs around R$28.

Now, the choice is all yours. You can continue with the MGLU3 action in your wallet and watch your money “melt”, or you can meet the cheap action and with a projection of abundant dividends recommended by Ferrer:

And don’t worry: access is free, courtesy of Vitreo. No penny will be charged for you to access the report on the action. Enough click here and enter a valid email to receive the report in your inbox.