We recently maintained our Neutral recommendation on
), one of the leading steel producers in Brazil.
Long-term growth prospects of Gerdau are quite remarkable. The
company has as many as 88 commercial branches in Brazil and 59
steel producing units worldwide. Presently, Gerdau is the second
largest long steel producer in the world and the largest in the
As the global economy is rebounding from the lows experienced
post the 2008 crisis, demand for better infrastructure and
emphasis on modernizing farming techniques is likely to spur
demand for steel in both developed as well as emerging and
developing countries. Talking of Brazil, future of the steel
market is strong as the country prepares to host major sporting
events in the years to come.
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. Gerdau has allocated an amount
equal to R$8.5 billion for investments during the years
2013-2017. Also, the company is working hard to increase
production of flat steel in Brazil, special bar quality in Brazil
and the United States, special steel in India, and iron ore in
Brazil. Moreover, investments are made in mineral resources and
Despite these positives, concerns surrounding the stock in the
near-term have forced us to maintain a neutral stance on Gerdau.
A glimpse into the recently reported first quarter 2013 results
shows that net results plummeted 60% year over year as revenue
generation was weak in the quarter, particularly from the
company's North American operations and Specialty Steel
Rise in cost of sales impacted gross margin which together
with higher operating expenses and fall in equity in earnings of
unconsolidated companies, adversely impacted operating income.
Steel production was weak in all operating regions and fell 11%
year over year. Shipments declined by 4% in the quarter.
Further, risks emanating from increasing competition,
disruptions in the supply of raw materials, foreign currency
fluctuations, among others pose threat to the growth of the
Others Stocks to Consider
Gerdau currently has a market capitalization of $11.1 billion
and carries a Zacks Rank #4 (Sell). Other stocks to watch out for
in the industry are
LB Foster Co.
Angang Steel Company Limited
ArcelorMittal South Africa Limited
), each with a Zacks Rank #2 (Buy).
ARCELORMITTL SA (AMSIY): Get Free Report
ANGANG STEEL LT (ANGGY): Get Free Report
FOSTER LB CO (FSTR): Free Stock Analysis
GERDAU SA ADR (GGB): Free Stock Analysis
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