We recently reiterated a Neutral recommendation on
Companhia Siderurgica Nacional
, or CSN
, a renowned Brazilian steel maker.
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Growth seems to be on the cards for the steel industry as
concerns related to the Eurozone crisis and instability in the
U.S. and China are abating gradually. This, in turn, is creating
more demand for better infrastructure and modernized farming
According to the World Steel Association's projection in Apr
2013, estimated global consumption of steel is likely to grow
2.9% in 2013 and 3.2% in 2014.
Domestic market for CSN is expected to receive a boost as the
country prepares to host major sporting events in the coming
years while major investments in infrastructures are also planned
for the development of ports, railroads, airports, wind farms and
roads, among others. The Brazilian Steel Institute (IABr)
predicts steel sales in Brazil to increase 7.7% in 2013.
We believe the long-term growth prospect of CSN is very bright as
the company seems well positioned to leverage benefits from the
growing steel demand worldwide. Investments for improvement in
production capabilities and services have also been planned. On a
consolidated basis, total spending in 2013 is expected to be
Despite being positive about CSN's long-term growth prospects, we
find near-term risks emanating from higher cost of sales,
increasing competition, disruptions in the supply of raw
materials and foreign currency fluctuations among others, to be
A look into the second quarter 2013 results shows that cost of
goods sold in the quarter rose 12.4% year over year while selling
expenses, as a percentage of net revenue, increased by roughly
220 basis points (bps) year over year.
The Zacks Consensus Estimate for CSN currently stands at a loss
of US$0.05 per ADR, reflecting a decline of 183.3% year over
year. Earnings estimate are at a loss of US$0.06 per ADR for 2013
and at earnings of US$0.01 per ADR for 2014.
Others Stocks to Consider
CSN currently has a market capitalization of roughly $5.6 billion
and holds a Zacks Rank #3 (Hold). Other stocks to watch out for
in the industry are
Nippon Steel & Sumitomo Metal Corporation
), with a Zacks Rank #1 (Strong Buy) while
Angang Steel Company Limited
), each come with a Zacks Rank #2 (Buy).