Companhia Siderurgica Nacional
), or CSN has been recently upgraded by us from Underperform to a
Neutral recommendation based on the company's long-term growth
With the world economy reviving, it is extremely clear that steel
producers will enjoy an advantageous position to leverage from the
growing demand for better infrastructure and agricultural needs.
According to the World Steel Association, steel demand is likely to
surge 3.6% in 2012 and 4.5% in 2013.
Prospects for the steel industry in Brazil are growing increasingly
brighter as the country is gearing up to host two major sporting
events, the 2014 Soccer World Cup and 2016 Olympic Games. Moreover,
the Brazilian steel industry is expected to get a boost from rising
demand from the manufacturing and construction industries and
infrastructure investments induced by a rise in government
CSN, a Brazilian company with a market capitalization of $7.55
billion, primarily engages in the production of hot- and
cold-rolled flat steel, galvanized sheets, and tin plates for the
packaging, automotive, and construction industries. We believe the
company is in a position to benefit from the rising steel demand in
the domestic as well international markets.
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.
Despite the long-term growth prospects, near-term uncertainties
keep us on the sidelines for the company. The company's second
quarter of 2012 was not very impressive as CSN's net results
plunged into losses amounting to R$1.05 billion as against earnings
of R$1.14 billion in the year-ago quarter. Loss per ADR came in at
US$0.37; way behind the Zacks Consensus Estimate of earnings of
US$0.04 per ADR. Revenues plunged 4% which along with a 20% rise in
cost of sales pulled down gross margin by 14%.
Despite the weak results and softness due to the Eurozone debt
crisis, we believe the growth outlook of Companhia Siderurgica is
The current Zacks Consensus Estimate for the third quarter 2012 is
8 cents, representing a year-over-year decline of 81.82%. Estimates
for 2012 and 2013 are 46 cents and 93 cents, reflecting
year-over-year growth of (67.15%) and 103.65%, respectively.
The company currently bears a Zacks #3 Rank, implying a
short-term (1-3 months) Hold rating.
CIA SIDERUR-ADR (SID): Free Stock Analysis
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