Gerdau Facing A Still-Challenging Brazil, But U.S. Margins Improving

These are still challenging days to be a steel producer in Brazil. Pushing through price increases takes some effort and patience, and demand is still being hamstrung by soft infrastructure spending and tenuous consumer confidence. Even so, Gerdau (GGB) is back to nearly 20% EBITDA margins in its home country, while efforts to improve margins in the U.S. also seem to be producing some benefits.

Gerdau shares have fallen about 16% since I last wrote on the company (when I thought they looked a little pricey), with a weaker Brazilian real exacerbating a 6% decline in the local shares. I can't say that the shares are supremely undervalued today, and I think I'd rather take my chances with Ternium (TX) in Latin American steel, but the shares do appear to have upside from here and that upside could expand if and when confidence returns to Brazil and as the company makes more progress with U.S. margins.

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Gerdau Facing A Still-Challenging Brazil, But U.S. Margins Improving