We recently maintained our Outperform recommendation on
Companhia Siderurgica Nacional
, anticipating it to outperform the broader market.
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CSN is a well known name in the Brazilian steel industry, engaged
primarily in the production of hot and cold-rolled flat steel,
galvanized sheet, and tin plate for the packaging, automotive,
and construction industries.
Over the long term, CSN is well positioned to leverage benefits
from the rising wave of infrastructural requirements in the
domestic and international markets. The World Steel Association
predicts global steel consumption to grow 3.1% in 2013 and 3.3%
in 2014. Instabilities in the U.S. and the Eurozone are abating
while China has recently shown solid signs of growth, favoring
growth prospects of steel makers.
The company is to benefit from a likely boost in the domestic
market demand for steel as the country prepares to host major
sporting events in the coming years. Major investments in
infrastructures are also planned for the development of ports,
railroads, airports, wind farms and roads, among others.
According to the Brazilian Steel Institute (IABr), crude steel
production in Brazil is likely to approximate 34.5 million tons,
flat year over year. Domestic sales are anticipated to rise by
5.3% and apparent consumption by 3.2%. For 2014, apparent
consumption of steel is expected to increase by 3.8%.
Also, the company has made investments to improve on production
capacity of steel. Besides steel, CSN's exposure to iron ore
mining, cement, and infrastructure projects makes it an
attractive stock to own. On a consolidated basis, total capital
spending in 2013 is expected to be R$3.1 billion.
A glimpse of the third quarter 2013 financial results clearly
depicts favorable company performance. CSN's earnings per ADR
were 15 cents in the quarter, surpassing the Zacks Consensus
Estimate of 3 cents. Net earnings, in local currency, grew 216%.
Revenues were up 23% as solid steel demand pushed up demand for
iron ore. Steel, mining and logistics segments performed well.
Gross margin expanded 500 basis points to 30%.
The Zacks Consensus Estimate for CSN currently stands at 30 cents
per ADR for 2013 and 22 cents for 2014, reflecting year-over-year
growth of 314.3% and a decline of 28.3%, respectively.
Others Stocks to Consider
CSN currently has a market capitalization of roughly $8.1 billion
and holds a Zacks Rank #1 (Strong Buy). Some other stocks worth
considering in the basic materials sector include
Asahi Kasei Corporation
United States Steel Corp.
). While Methanex and Asahi Kasei hold a Zacks Rank #1 (Strong
Buy), United States Steel carries a Zacks Rank #2 (Buy).