Gerdau Worth Another Look As Healthy Demand Leads To A More Gradual Down-Cycle

 

Writing about Gerdau (GGB) in early September of 2021, I thought that while the shares of this Brazilian steel company weren’t expensive, there was sentiment risk from a market that had started moving away from steel stocks. That call worked pretty well up until fourth quarter earnings, with the shares lagging the S&P 500, but the earnings report and guidance call lit a fire under the shares, sending them 20% higher since.

I do think we’re “post-peak” for the sector, and I expect sales and EBITDA to decline in both 2022 and 2023, with 2023 FCF about 25% below 2021 levels, but I think the industry is likely to see a firmer bottom than in past cycles, and I like Gerdau’s leverage to a healthy Brazilian market, as well as its leverage to stronger U.S. construction and infrastructure spending. On top of that, I think this is a well-run company, with management taking a very prudent approach to both debt and capex. While steel companies are rarely appropriate as long-term holdings, I do think Gerdau’s ADRs should trade well into the $6’s, offering decent upside at today’s price.

 

Read the full article here: 

Gerdau Worth Another Look As Healthy Demand Leads To A More Gradual Down-Cycle