We recently upgraded our recommendation on
), a leading sugar and ethanol producers in Brazil, from
Underperform to Neutral.
Why the Upgrade?
Long-term growth prospects appear quite compelling for Cosan. The
company's core sugar and ethanol businesses are prospering well
as demand is growing rapidly. In addition to this, exposure into
energy, food, logistics, infrastructure and farmland development
and management businesses are bearing fruits as well.
For 2014, Cosan provided an impressive guidance anticipating
higher revenues and earnings before interest, taxes, depreciation
and amortization (EBITDA) compared with that for 2012. The
guidance is based on the expectation that the business segments
will perform well, going ahead. The mid-point of the crushed
sugarcane volume guidance represents a 7.6% increase over the
Cosan has spent roughly R$2.2 billion in fiscal 2013 to improve
its capacity and services. During the year, the company completed
rebranding of its Esso stations to the Shell brand. For 2014,
further investments of roughly R$3.1-R$3.35 billion has been
Additionally, the formation of new business units (Radar and
Comgas), the company's association with Camil, and its stake
acquisitions in Comma and América Latina Logística (ALL), would
undoubtedly result in increased competitiveness in their
In view of the developments mentioned above, we upgraded Cosan.
However, the near-term risks surrounding the stock restricted the
upgrade to a Neutral recommendation only. Adverse weather
conditions, rising competition, higher cost of sales and services
as well as rising long-term debt are detrimental to the company's
In the fourth-quarter fiscal 2013 results, Cosan recorded a 49.6%
year- over-year increase in cost of sales and services while its
operating expenses (selling, general and administrative expenses)
grew by 49.6%. The company's long-term debt, though down a meager
3.6% on a sequential basis, was as high as $9.7 billion.
Other Stocks to Consider
Cosan currently has a market capitalization of $4.2 billion.
Other players that are worth a mention in the industry are
Hillshire Brands Company
The Andersons, Inc.
ANDERSONS INC (ANDE): Free Stock Analysis
COSAN LTD-A (CZZ): Free Stock Analysis Report
HILLSHIRE BRAND (HSH): Free Stock Analysis
MONSANTO CO-NEW (MON): Free Stock Analysis
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