On Apr 10, 2015, we issued an updated research report on Companhia Siderurgica Nacional SID or CSN. One of the leading steel producers in Brazil, the company primarily serves the packaging, automotive and construction industries.
Companhia Siderurgica Nacional seems well positioned to leverage benefits from the growing steel demand, internationally as well as domestically. The World Steel Association has predicted the global steel demand to increase 2% in 2015, with strong demand from China. Similarly, the Brazilian Steel Institute (IABr) expects sales to be approximately 20.8 million tons for 2015.
Notably, Companhia Siderurgica Nacional’s diversified business structure has proved to be beneficial over time. In addition to its core steel business, the company has exposure in iron ore mining, logistics, cement and energy. For 2014−2019, the company has planned investments totaling R$21.3 billion, including R$12 billion for the mining business, R$0.4 billion for steel, R$1.4 billion for cement and R$7.5 billion for miscellaneous purposes. Also, the company is committed toward rewarding its shareholders handsomely.
However, despite bright long-term prospects, near-term headwinds can restrict Companhia Siderurgica Nacional’s growth. In fourth-quarter 2014, the company’s top line declined 23.3% year over year due primarily to weak mining business in the quarter. Steel sales volume slipped 2% sequentially, while crude steel production fell 11%.
Further, iron ore sales decreased 2% sequentially. Other businesses like Logistics, Cement and Energy recorded respective revenue declines of 13.6%, 9.2% and 21.6%. The company’s debt level grew 8% sequentially, heightening the company’s financial obligations for the quarters ahead.
We believe risks arising from high debt levels, increasing competition and foreign currency fluctuations might prove detrimental to Companhia Siderurgica Nacional’s growth in the near term. The Zacks Consensus Estimate for the stock is currently pegged at a loss of 23 cents per American Depository Receipt (“ADR”) for 2015 and earnings of 7 cents per ADR for 2016.
CSN currently has a $2.4 billion market capitalization. Stocks worth considering in the industry include ThyssenKrupp AG TYEKF, Commercial Metals Company CMC and LB Foster Co. FSTR. While ThyssenKrupp AG sports a Zacks Rank #1 (Strong Buy), both Commercial Metals Company and LB Foster carry a Zacks Rank #2 (Buy).
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