Expectations Seem To Have Caught Up To Gerdau

Brazil's Gerdau (GGB) has remained one of the strongest performers in the steel sector, as the company is benefiting from a healthy combination of end-market recoveries in Brazil and North America and better management discipline. Gerdau's management team still believes that they can drive North American margins into the double digits and that the recoveries in Brazil's construction and infrastructure sectors are only getting started.

All of that sounds great, but price/value remains a hang up for me. Unlike many North American and European producers, I don't think Gerdau is going to see a near-term EBITDA peak in 2018 or 2019. I'm willing to give Gerdau a higher EBITDA multiple than I would for most steel companies, but it takes a 12-month EBITDA estimate of over R$6B and a multiple of over 7x to drive a compelling fair value from here.

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Expectations Seem To Have Caught Up To Gerdau