We recently reiterated our Neutral recommendation on Brazilian steel maker, Companhia Siderurgica Nacional (SID), or CSN as optimism arising from the company’s long-term growth prospects get marred by near-term concerns.
Considering the long-term growth prospects, we find SID, a $7.5 billion company, one of the best steelmakers in Brazil. SID seems well equipped to leverage benefits from the growing steel market in the domestic as well as the international arena. As projected by the World Steel Association, the apparent global steel consumption is expected to increase 3.2% in 2013.
Reviving global economy has also boosted demand for better infrastructure and agricultural needs, in turn, it has also increased demand for steel worldwide. Talking of Brazil, future of steel industry is bright here, especially when the country is gearing up to host two major sporting events; the 2014 Soccer World Cup and 2016 Olympic Games. Moreover, rising demand from the manufacturing and construction industries and infrastructure investments induced by a rise in government spending are added benefits for the industry as well as SID.
Despite these positives, near-term concerns and financial performances keep us on the sidelines. Third quarter 2012 results of SID failed to gain enough momentum on a year-over-year basis as net earnings fell roughly 85% in the quarter. Moreover, a 23% increase in the cost of sales offset a mere 0.6% rise in revenue that led to a 14% fall in gross margin. Moreover, the prevailing weakness in the European market, slow growth in China and sluggish growth in the United States are impacting the worldwide steel industry.
Others Stocks to Consider
Other stocks to watch out for are Shiloh Industries Inc. (SHLO) with a Zacks Rank #1 (Strong Buy) along with Kobe Steel Ltd. (KBSTY) and Nippon Steel & Sumitomo Metal Corporation (NSSMY), both holding a Zacks Rank #2 (Buy).
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