We recently downgraded our recommendation on
Companhia Siderurgica Nacional
), or CSN from Neutral to an Underperform rating based on the
company's near-term weaknesses.
CSN's first quarter 2012 results were not impressive as the
results were plagued by rising cost of materials, weak margins and
lower profits. The company's earnings in the quarter were just 4
cents per ADR, lagging behind both the year-ago earnings as well as
the Zacks Consensus Estimate of 25 cents per ADR.
Moreover, rising competition and higher debt levels are the
major impediments to growth. The steelmaker faces stiff competition
from its peers including
Mechel Oao ADS
Anticipating weakness throughout the year, we project 2012
earnings to be around 98 cents, down 35% year over year. Moreover,
rising competition and higher debt levels still remain other major
impediments to growth.
Despite the weak results and softness apprehended in the near
term, we still remain confident about the company's long-term
The company stands at an advantageous position to leverage from
the growing world steel market. According to the World Steel
Association, steel demand in the world is expected to surge 3.6% in
2012 and 4.5% in 2013. Growth has been occurring quite steadily in
this sector as time passes.
Moreover, for the Brazilian steel industry business is looking
up as demand soars and infrastructure investments are induced by a
rise in government spending, as the country hosts the 2014 Soccer
World Cup and 2016 Olympic Games.
Moreover, the company's diversified portfolio is a boon; with
non-core businesses including Mining, Logistics, Cement and Energy
accounting for roughly 40% of revenues.
The stock currently bears a Zacks #5 Rank, translating into a
short-term Strong Sell rating.
COMMERCIAL METL (CMC): Free Stock Analysis
MECHEL OAO ADS (MTL): Free Stock Analysis
CIA SIDERUR-ADR (SID): Free Stock Analysis
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