We recently maintained our Outperform recommendation on Companhia Siderurgica Nacional (SID), or CSN, anticipating it to outperform the broader market.
CSN is a well known name in the Brazilian steel industry, engaged primarily in the production of hot and cold-rolled flat steel, galvanized sheet, and tin plate for the packaging, automotive, and construction industries.
Over the long term, CSN is well positioned to leverage benefits from the rising wave of infrastructural requirements in the domestic and international markets. The World Steel Association predicts global steel consumption to grow 3.1% in 2013 and 3.3% in 2014. Instabilities in the U.S. and the Eurozone are abating while China has recently shown solid signs of growth, favoring growth prospects of steel makers.
The company is to benefit from a likely boost in the domestic market demand for steel as the country prepares to host major sporting events in the coming years. Major investments in infrastructures are also planned for the development of ports, railroads, airports, wind farms and roads, among others.
According to the Brazilian Steel Institute (IABr), crude steel production in Brazil is likely to approximate 34.5 million tons, flat year over year. Domestic sales are anticipated to rise by 5.3% and apparent consumption by 3.2%. For 2014, apparent consumption of steel is expected to increase by 3.8%.
Also, the company has made investments to improve on production capacity of steel. Besides steel, CSN’s exposure to iron ore mining, cement, and infrastructure projects makes it an attractive stock to own. On a consolidated basis, total capital spending in 2013 is expected to be R$3.1 billion.
A glimpse of the third quarter 2013 financial results clearly depicts favorable company performance. CSN’s earnings per ADR were 15 cents in the quarter, surpassing the Zacks Consensus Estimate of 3 cents. Net earnings, in local currency, grew 216%. Revenues were up 23% as solid steel demand pushed up demand for iron ore. Steel, mining and logistics segments performed well. Gross margin expanded 500 basis points to 30%.
The Zacks Consensus Estimate for CSN currently stands at 30 cents per ADR for 2013 and 22 cents for 2014, reflecting year-over-year growth of 314.3% and a decline of 28.3%, respectively.
Others Stocks to Consider
CSN currently has a market capitalization of roughly $8.1 billion and holds a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the basic materials sector include Methanex Corporation (MEOH), Asahi Kasei Corporation (AHKSY) and United States Steel Corp. (X). While Methanex and Asahi Kasei hold a Zacks Rank #1 (Strong Buy), United States Steel carries a Zacks Rank #2 (Buy).