GGB - Gerdau: Infrastructure Spending Could Fuel Growth In Face Of Cheap Chinese Steel

2024-02-10 00:19:18 ET

Summary

• Gerdau S.A. faces short-term challenges due to cheap Chinese steel exports but should benefit from significant infrastructure spending in the US and Brazil.
• GGB has significant exposure to the US market, which accounts for more than half its gross profits and should offset the impacts of Chinese steel exported to Brazil.
• Gerdau has a strong balance sheet and is well-capitalized to ride out these challenges and then benefit from the increased government spending in its key markets.

Gerdau S.A. (GGB) faces short-term headwinds in the cyclical steel industry, but the tailwinds of infrastructure spending in both the United States and Brazil may just be enough to keep their earnings propped up. With most of the negatives priced in, and the market perhaps mispricing some of the positives, GGB is attractively priced at $4.26 per share as of close on February 8, 2024.

Investment Thesis

The Brazilian steel industry is currently facing serious challenges, with China exporting a significant amount of steel at bargain prices that Brazilian steelmakers say amounts to unfair dumping. As a result, their stock prices are beaten down....

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