Gerdau SA, Latin America’s biggest steelmaker by market value, rose after Bank of America Corp. raised the stock to buy, saying the company is poised to benefit from a weaker Brazilian currency and rebounding steel prices.
The shares gained 5.1 percent to 13.25 reais at the close of trading in Sao Paulo, the highest since June 4. It was the best performer on the Ibovespa Brazilian stock benchmark, which declined 0.5 percent.
Bank of America analysts including Thiago Lofiego raised Gerdau from the equivalent of hold, saying it “presents the most favorable risk-reward proposition” among Brazilian steelmakers as it is the most directly exposed to a depreciating real with about 40 percent of revenue coming from North America. “Also, we think international steel prices are close to a bottom, while results should rebound consistently after a weak first quarter,” the analysts wrote in a research note.
The real has dropped 8 percent in 2013 to 2.2290 per dollar as stagnant economic growth in Brazil, violent street protests and speculation the Federal Reserve will curtail its stimulus program triggered a flight from emerging-market assets. The price of steel reinforcement-bar has fallen 14 percent this year in China to $480 per metric ton, the lowest since 2009, according to data compiled by Bloomberg.
Bank of America also raised its recommendation on Usinas Siderurgicas de Minas Gerais SA, Brazil’s third-biggest steelmaker by market value, to the equivalent of hold from sell saying that the company has room to increase prices in Brazil in the second half of this year or the first half of 2014. Shares of Usiminas, as the company is also known, gained 0.3 percent to 7.45 reais.
“Usiminas trades at 6.3 times its estimated earnings before interest, taxes, depreciation and amortization for next year, fair in our view,” the Bank of America analysts wrote.