Zacks Investment Research upgraded shares of Gerdau S.A. (GGB) from UNDERPERFORM to NEUTRAL on August 29, 2012, with a target price of $9.50.
Gerdau's 2Q12 net results improved 9% while its top-line registered an 11% y/y increase. Improved sales in the domestic market, chiefly due to a rise in construction demand, were partially offset by weaker exports caused by instability in the European economy. Businesses in North America and Latin America also flourished along with strengths witnessed in Special Steel. According to the WSA, the steel industry is likely to see steel consumption grow by 3.6% in 2012 and 4.5% in 2013. Recovery in economic health worldwide is a definite sign of boosting demand for better farming techniques and infrastructure. We see Gerdau well positioned to benefit from rising steel demand. Efforts are being made to improve manufacturing techniques and attain self-sufficiency in raw materials. As such, we have upgraded the stock to a Neutral recommendation. However, weakness arising from the Eurozone debt crisis, rise in raw material costs and currency translation impact the growth momentum for Gerdau.
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