JPMorgan cuts Natura to neutral and sets R$ 8.50 target

JPMorgan downgraded Natura &Co from overweight to neutral on September 30, 2026, lowering its price target to R$ 8.50 for December 2027 from R$ 11.00 previously projected for December 2026. While the new target implies an upside potential of 25% to 30%, the bank views that margin as limited given rising risks, a higher cost of capital, and a 15% reduction in its earnings per share estimate.

The bank highlighted that the full sale of Avon International outside Latin America eliminated tail risks, but operational challenges have resurfaced. For 2026, JPMorgan slashed its net income estimate for continuing operations by 41% to R$ 184 million, down from R$ 311 million, while lifting projected net financial expenses by 16% to R$ 1.14 billion. Net revenue for 2026 is forecast at R$ 21.29 billion, down 4% year on year, with Ebitda reaching R$ 2.45 billion, a 10% increase.

For 2027, the bank cut projected net revenue by 2% to R$ 22.7 billion and Ebitda by 10% to roughly R$ 3 billion, while net income from continuing operations dropped 15% to R$ 1.27 billion from R$ 1.5 billion. Key concerns include weak Avon trends across Latin America, difficulties in direct selling, and an adverse consumer environment. Corporate expense cuts of 25% to 30% could soften the blow, but JPMorgan noted that in its 2027 earnings quality analysis, only 19% of Natura's profit is operational, while 65% relies on ICMS tax incentives and 15% on government tax subsidies.

The downgrade followed sharp share losses, with the stock dropping 20.8% over two months and 17.4% in two weeks. Although consensus estimates show the shares trading at 8.4 times forward earnings, representing a 72% discount to their historical average of 29.5 times, JPMorgan estimates Natura trades at around 7 times 2027 earnings and 6 times 2028 earnings, which the bank argues is not compelling enough given ongoing turnaround risks.