We maintained our Neutral recommendation on Companhia Siderurgica Nacional (SID), or CSN.
The long-term growth prospect of CSN is very bright as the company seems well positioned to leverage benefits from the growing steel demand worldwide. According to the World Steel Association’s (:WSA) forecast announced in Apr 2013, the global demand for steel is likely to grow 2.9% in year 2013.
Talking of the Brazilian steel industry alone, the Brazilian Steel Institute (IABr) predicts steel sales in Brazil to increase 7.7% in 2013. Steel demand in Brazil is likely to remain strong due to rising requirement from the manufacturing and construction industries; emphasis on modernizing farming techniques; infrastructure investments induced by a rise in government spending and hosting of major sporting events like the 2014 Soccer World Cup and 2016 Olympic games.
Moreover, CSN has a diversified business and has exposure to iron ore mining, cement, and infrastructure projects. Investments have been made to improve the company’s Casa de Pedra mine’s annual production capacity to 50 million tons. The whole mining sector of CSN is likely to produce 89 million tons of iron ore per year by 2014. Total capital investments of R$3.1 billion have been planned for year 2013.
Despite these positives, near-term concerns and financial performances keep us on the sidelines for CSN.
Financial results in the first quarter 2013 did not provide much relief from the weak results in the past few quarters. Net earnings fell 82% year over year and earnings per ADR came in at US$0.01. Increase in cost of sales countered a 6% rise in revenues that led to a 7% fall in gross margin.
Moreover, the prevailing weakness in the European market and slow growth in China and the United States are impacting the steel industry worldwide and in turn CSN.
Others Stocks to Consider
CSN is a renowned Brazilian steel maker and currently has a market capitalization of US $4.5 billion. Other stocks to watch out for in the industry are Shiloh Industries Inc. (SHLO) and Kobe Steel Ltd. (KBSTY), each with a Zacks Rank #1 (Strong Buy) while LB Foster Co. (FSTR) carrying a Zacks Rank #2 (Buy).
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