Brazilian home builder Gafisa is earning a bit of applause in
the market today for reporting stunning earnings growth -- but any
gains will probably be limited at best.
) tripled its profits last quarter and beat analyst forecasts by an
impressive 23%. And it is true that Brazilian housing has been
booming. But the sector's future does not look all that bright.
Interest rates are climbing, which puts a big speed bump in the
mortgage market. Plus, for the emerging Brazilian middle class,
inflation is forcing many to make harder consumption choices -- and
that is hurting savings for down payments, much less rent. We still
think GFA is a sell. The company's receivables climbed last
quarter, which indicates that it is billing a lot more accounts
that are not paying promptly. Margins are falling. It is burning
through capital and potentially extending credit to places that
simply do not warrant it. And the CEO is resigning but staying in
the company in a reduced capacity -- never a good sign. The chart
may tell you the worst is over now that we are down 45% from the
October highs, but you could argue that this is a stock that has a
long way left to fall. We are in that latter camp around here.