Citi downgraded its recommendation for Rumo shares from neutral to sell. The argument is that market optimism about the short term does not match the risks the company faces, with its valuation at very high levels.
The change in recommendation was accompanied by a cut in the target price for the shares, which went from R$ 15 to R$ 13.50. This value is below the R$ 16.59 at which the assets closed trading on Thursday, April 16, a drop of 2.18%. Year-to-date, the shares have accumulated a 12.5% increase, bringing the market value to R$ 30.8 billion.
According to analyst Filipe Nielsen, although there is room to adjust service rates and the reduction in the capex forecast for the Lucas do Rio Verde (LDRV) railway project alleviates concerns about cash flow generation, the demand from the agricultural sector for rail transport is proving to be low, limiting the company's room for maneuver.
"With Rumo prioritizing volume growth in an environment where demand is not so positive, incremental market share gains on trucks should require additional tariff incentives, something that should weigh on revenue and EBITDA margin," says an excerpt from the report.
According to the Citi analyst, data indicates that margins in the road transport sector, Rumo's main competitor, were compressed in the first quarter, following the soybean harvest. This suggests a disconnect between export potential and the logistics flow executed so far.
"Despite this year's record soybean harvest, sales remain below the historical average, limiting logistical demand and the pass-through of increased fuel costs to freight prices," says an excerpt from the report.
Another particularly negative point for Rumo is the fact that domestic demand for corn, driven by ethanol plants in the Midwest , is expected to reduce the availability of the product destined for export to ports, one of the focuses of Rumo's service.
The Citi analyst also warns about the outlook for 2027. According to him, the projected increase in fertilizer prices, a consequence of the war in Iran , should raise the costs of these inputs. This situation should limit the expansion of the cultivated area, affecting Rumo's prospects for achieving gains in volumes.
"Despite continuing to expect an increase in Rumo's tariffs in the second quarter and the second half of the year, supported by a more benign comparison base after last year's adjustments, the outlook for 2026 onwards remains challenging for further price increases," says an excerpt from the report.
Given this scenario, the Citi analyst believes that the risk-return ratio is not favorable for investing in Rumo shares, considering the current valuation.
According to him, the EV/EBITDA of the bonds for 2026 has expanded to 6 times, while the real internal rate of return (IRR) spread is below the average recorded in the period from September 2024 to April of this year – 3.1% versus 4.6%.
"The valuation approached the upper end of what we consider a reasonable range, incorporating expectations that are basically based on a favorable short-term operating scenario, ignoring a large part of the medium- and long-term risks," says an excerpt from the report.
