We recently maintained our Neutral recommendation on
), one of the leading steel producing companies in the world.
GERDAU SA ADR (GGB): Free Stock Analysis
ARCELOR MITTAL (MT): Free Stock Analysis
CIA SIDERUR-ADR (SID): Free Stock Analysis
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The steel-maker conducts its operations through 70 commercial
branches in Brazil and has as many as 59 steel producing units
worldwide, inclusive of joint ventures and associated companies.
It is the second largest long steel producer in the world and the
largest in the Americas.
Rising global demand along with an increase in Gerdau's domestic
demand for steel is a boon for the company. Needs for better
farming techniques and infrastructure have stood the company in
good stead, working as steel demand stimulators across the world.
Amidst recovering global economy, a slowdown in China and the
prevailing Eurozone crisis are decelerating the overall growth
process. Considering these near-term concerns, the World Steel
Association projected apparent global consumption of steel to
grow 2.1% in 2012 and 3.2% in 2013, reflecting downward revision
from its prior forecast of 3.6% in 2012 and 4.5% in 2013.
The company's results in the third quarter 2012 were affected as
consolidated shipments declined due to prevailing weakness in the
European region and slower growth in China. Even Brazilian
demand for steel, though got a boost from the infrastructure
sector, failed to gain momentum from the residential and
Net results in the third quarter were overshadowed by a 13%
increase in cost of sales, which offset a 10% increase in net
revenues. Net income went down by 43% to R$408 million (US$204
million) while EPADR came in at US$0.12 versus US$0.25 earned in
the year-ago quarter.
Further, a negative earnings surprise of 35.9% in the
trailing four quarters and expectation of an 11.3% negative
earnings surprise for 2012 and 5% for 2013 keep us on the
sidelines for Gerdau. The company should also remain wary of
other formidable players in the industry including
Companhia Siderurgica Nacional
). Companhia Siderurgica Nacional posted net earnings of US$0.06
per ADR; ahead of the Zacks Consensus Estimate of US$0.01 per
The current Zacks Consensus Estimate for the fourth quarter is 15
cents, flat year- over-year. Estimates for 2012 and 2013 are 53
cents and 60 cents, respectively. These represent annual decline
of 26.7% in 2012 and growth of 14.1% in 2013.
Gerdau currently bears a Zacks #3 Rank, implying a short-term