Gerdau Remains in Neutral Zone - Analyst Blog

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We recently maintained a Neutral recommendation on Gerdau S.A. ( GGB ), one of the leading steel producing companies in the world.

The steel making giant, Gerdau, is the second largest long steel producer in the world and the largest in the Americas.The company produced roughly 19.6 million tons of crude steel (slabs, blooms and billets) and 16.4 million tons of rolled products in the fiscal year 2011.

Moreover, with the global economy recovering gradually, the steel industry is also looking up, and showing signs of growth due to its link with infrastructure investments. Government expenditures on infrastructure projects are stepping up like never before in the emerging economies. The Brazilian steel industry is positioned to leverage the rising wave of worldwide infrastructural requirements and is also expected to keep up with the demand growth in the short-to-medium term.

According to the World Steel Association, global demand of steel is likely to increase by 5.4% in 2012. Steel demand in China, the United States and India remains at high levels. To cope with the rising demand from the emerging economies of China, India, Japan as well as that of the United States, Gerdau plans to invest roughly R$10.3 billion till 2016. This looks quite promising for the company's future growth trail.

Gerdau in 4Q11 posted 12% and 16% increase in net earnings and revenue, respectively. Shipments were strong; while crude steel production went up 8% year over year, benefiting largely from higher demands from operating regions.

However, the positive momentum gets a setback from higher raw material costs, which still remain a concern for the company. Moreover, eurozone debt crisis, downtrend in the Chinese economy and risk of recession in US force us to stay on the sidelines. To add to the peril, growth gets restricted due to headwinds arising from foreign currency fluctuation, cyclicality of the industry and stiff competition from its peers including other major steel majors like Companhia Siderurgica Nacional ( SID ) and Arcelor Mittal ( MT ).

The current Zacks Consensus Estimate for the first quarter is 30 cents, representing a year- over-year growth of 87.50%. Estimate for the fiscal year 2012 and 2013 is 77 cents and $1.14, with growth of roughly 6.94% and 48.05%, respectively.


 
GERDAU SA ADR ( GGB ): Free Stock Analysis Report
 
ARCELOR MITTAL ( MT ): Free Stock Analysis Report
 
CIA SIDERUR-ADR ( SID ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: GGB , MT , SID

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