Zacks Investment Research upgraded Gerdau S.A. GGB to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell) on May 23, 2015.
Why the Upgrade?
Gerdau is consistently trying to widen the scale of its operations with the help of lucrative investment programs. The company aims to invest roughly R$8.5 billion within 2013–2017. We believe larger scale of operations would not only improve the company’s top line but also lower its costs via greater economies of scale in manufacturing process. Moreover, the company’s new logistics program is expected to enhance its operational performance and thereby, support reduction of costs in the near future. Apart from investments, growth via greater geographical diversification is also a major corporate level strategy of Gerdau. We believe that greater business internationalization would improve the company’s tangible and intangible resource base in the long run.
Despite the growth opportunities, Gerdau has been upgraded to a Zacks Rank #3 due to a few conflicting issues. Slower demand growth in construction and manufacturing industries hurts the sale of the company’s steel in the market. Moreover, appreciation of the U.S. dollar with respect to Brazilian Real adversely affects the company’s international revenues and profits. At the same time, volatility in input prices and supply enhances risks of margin loss for Gerdau.
On account of the above-mentioned positive as well as negative factors, analysts prefer to hold a neutral view on the stock. This is clearly evident from the Zacks Consensus Estimate over the past 7 days, which remains unchanged at 16 cents per share for 2015 and 28 cents for 2016.
Stocks to Consider
Better-ranked stocks in the industry include Olympic Steel Inc. ZEUS, Evraz Highveld Steel & Vanadium Ltd. HGVLY and POSCO PKX. Olympic Steel Inc. sports a Zacks Rank #1 (Strong Buy), while both Evraz Highveld Steel & Vanadium Ltd. and POSCO carry a Zacks Rank #2 (Buy).
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