Rating Change #4

Gerdau SA ( GGB) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, good cash flow from operations, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

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Highlights from the ratings report include:
  • Net operating cash flow has significantly increased by 189.40% to $478.88 million when compared to the same quarter last year. In addition, GERDAU SA has also vastly surpassed the industry average cash flow growth rate of -26.65%.
  • GGB's share price has surged by 25.70% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GGB should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • GERDAU SA's earnings per share declined by 21.1% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, GERDAU SA reported lower earnings of $0.64 versus $0.90 in the prior year. This year, the market expects an improvement in earnings ($1.09 versus $0.64).
  • GGB, with its decline in revenue, underperformed when compared the industry average of 14.4%. Since the same quarter one year prior, revenues fell by 25.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.

Gerdau S.A. engages in the production and sale of steel products in Brazil and internationally. The company has a P/E ratio of eight, below the average metals & mining industry P/E ratio of 15.4 and below the S&P 500 P/E ratio of 17.7. Gerdau has a market cap of $16.58 billion and is part of the basic materials sector and metals & mining industry. Shares are up 31.5% year to date as of the close of trading on Friday.

You can view the full Gerdau Ratings Report or get investment ideas from our investment research center.

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