We issued an updated research report on Companhia Siderurgica Nacional ( SID ) or CSN, one of the leading steel producers in Brazil, on May 22, 2014.
The world economy is still recovering from the ravages of the 2008 global crisis and is anticipated to grow by 3.6% in 2014 and by 3.9% in 2015, according to the International Monetary Fund (IMF). The healthy growth expectations are conducive to demand expansion in the global steel industry. The World Steel Association (WSA) predicts global steel consumption to rise by 3.1% in 2014 and 3.3% in 2015.
The Brazilian government, under its Growth Acceleration Program or PAC - phase II, has planned major investments for the development of ports, railroads, airports, wind farms and roads. This, we believe, will be advantageous for steel companies like CSN. According to the Brazilian Steel Institute (IABr), domestic steel consumption is likely to reach approximately 27.2 million tonnes in 2014.
Also, CSN recently reported impressive first-quarter 2014 results. Net income surged 102.5% year over year while earnings came in at $0.02 per American Depositary Receipt (ADR). Revenues grew by 22% and steel production increased 3%.
However, despite these positives, near-term risks due to rising cost of sales, growing competition and exchange rate fluctuations might prove detrimental to growth. Over the last 30 days, the Zacks Consensus Estimate has decreased 6.5% to 29 cents per ADR in 2014 and by 27.0% to 27 cents per ADR in 2015.
We anticipate CSN to perform in line with the broader market over the next 6-12 months.
Others Stocks to Consider
CSN currently has a market capitalization of roughly $5.9 billion and holds a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the industry include Universal Stainless & Alloy Products Inc. ( USAP ), ThyssenKrupp AG ( TYEKF ) and Gibraltar Industries, Inc. ( ROCK ). While Universal Stainless & Alloy Products sports a Zacks Rank #1 (Strong Buy), both ThyssenKrupp and Gibraltar Industries carry a Zacks Rank #2 (Buy).
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