Gerdau's (GGB) Long-Term Potential Solid On Core Strength

We issued an updated research report on Gerdau S.A. (NYSE:GGB) on Jul 4, 2016. The company is one of the leading steel producers in the world, with solid long-term growth potential that has helped it gain high investment value.

One of the most attractive features of Gerdau is its diversified business portfolio. The company produces crude steel, including slabs, blooms and billets, as well as flat steel. Also, the company engages in iron ore mining activities. In addition, the company has been leveraging the benefits of its geographically diversified operations, primarily in South America, North America, Europe and Asia. Its international diversity provides support to the top-line, as decline in revenues in some regions can be offset by improvement in others.

Over time, Gerdau has been following a strategy of acquiring meaningful businesses or disposing its loss-making ones to improve its profitability. In Jul 2016, the company completed the disposition of its Spain-based special steel producer to Clerbil SL. The sale proceeds can be utilized for strengthening the company’s core operations. Also, the company is making investments to improve its production capabilities. Efforts are being made to increase production of flat steel and iron ore in Brazil, special bar quality in Brazil and the U.S., and special steel in India. Investments have been planned to improve the company’s mineral resources and logistics.

In addition, we believe Gerdau’s solid cash position, roughly $4.7 billion cash and cash equivalents exiting first-quarter 2016 as well as net cash of R$0.9 billion generated from operating activities in the quarter is reflective of its improving business. This will help it reward shareholders through dividend and interest on capital payments. In 2015, Gerdau paid dividends and interest on capital of R$358.2 million.

Going forward, we believe any investment in infrastructure improvements by the government will boost steel demand in these regions, thereby creating a lucrative market condition for steel producers like Gerdau. With a market capitalization of $3.2 billion, Gerdau presently carries a Zacks Rank #2 (Buy).

Other stocks worth considering in the industry include Ryerson Holding Corporation (NYSE:RYI) , AK Steel Holding Corporation (NYSE:AKS) and ArcelorMittal (NYSE:MT) . While Ryerson Holding sports a Zacks Rank #1 (Strong Buy), both AK Steel Holding Corporation and ArcelorMittal carry a Zacks Rank #2.


AK STEEL HLDG (AKS): Free Stock Analysis Report

ARCELOR MITTAL (MT): Free Stock Analysis Report

GERDAU SA ADR (GGB): Free Stock Analysis Report

RYERSON HOLDING (RYI): Free Stock Analysis Report

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