Cemex Seen Poised for Top Mexico Gain Following Fed-Fueled Rout

  • Shares may rise 80% in the next year, Bloomberg survey shows
  • Cement maker reached the lowest since 2012 earlier this week

Cemex SAB tumbled to a three-year low this week ahead of a potential increase in U.S. interest rates by the Federal Reserve. That’s making the largest cement maker in the Americas a buy to JPMorgan Chase & Co. and Vector Casa de Bolsa SA brokerage.

Investors dumping shares now will miss out on likely gains in 2016 as the company’s U.S. recovery strengthens, said Vector analyst Jorge Placido. Cemex is poised to advance 80 percent in the next 12 months, the most on the benchmark IPC index of 35 Mexican stocks, as it nears its first annual profit in seven years, according to analyst estimates compiled by Bloomberg.


“The share performance has more to do with the conditions of the financial markets than with the company,” Placido said by telephone from Mexico City. “Foreign investment fund managers and strategists have been reducing risks in emerging markets because of the effects that a Fed decision could have.”

Jorge Perez, a spokesman for Monterrey, Mexico-based Cemex, declined to comment on its share performance and forecasts. Shares rose 1.7 percent to 9.1 pesos at the close of trading in Mexico City.

Cemex has dropped 15 percent this month through Tuesday, the biggest decline on the IPC and more than five times the retreat in the MSCI Emerging Markets Latin America Index. Before a partial rebound Tuesday, shares hadn’t traded this low since 2012, when the company announced a deal with banks extending the maturity of a 2009 loan agreement.


The cement maker is set to benefit from gains next year in the U.S., its largest market by sales through September, said JPMorgan analyst Adrian Huerta. U.S. earnings before interest, taxes, depreciation and amortization, a profit measure known as Ebitda, will climb in 2016 to the highest in eight years, Huerta said.

“We like the Cemex story on the back of its depressed Ebitda relative to prior peaks and its growth opportunities,” Huerta said in a report dated Dec. 15.

While he trimmed his Ebitda forecast and reduced his 12-month price target for Cemex’s American depositary receipts this week to $7.40 from $10, that still leaves room for a 42 percent rise from Tuesday’s close. Huerta maintained an overweight recommendation, the equivalent of a strong buy.

Cemex remains vulnerable to further dollar strengthening, according to Vanessa Quiroga, an analyst with Credit Suisse Group AG. About 85 percent of the cement maker’s debt is denominated in dollars while only 24 percent of Ebitda is generated in the U.S. currency, she said.

“Cemex remains too vulnerable amid market volatility given its high leverage and currency mismatch,” she said in a report this week, cutting her price target by 45 percent to $6 per ADR.

Cemex may also be hurt by stepped-up competition in Mexico, its largest market by Ebitda, Quiroga said. The company raised domestic cement prices 14 percent in local currency terms in the third quarter from a year earlier while volumes fell 4 percent, it said Oct. 22.

Higher prices at home will pay off for Cemex as smaller competitors imitate the strategy, JPMorgan’s Huerta said. That will complement gains in the U.S., where a $305 billion highway bill approved this month is expected to boost demand for cement and ready-mix concrete.

“The U.S. market recovery stands out and will be the factor that influences its performance,” Placido said.

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