Barclays Says `Cheap' Cemex Can Go Lower as Peso Curbs Rebound

  • Cemex's shares heading toward worst start to year on record
  • About 85% of company's debt is denominated in U.S. dollars

The largest cement maker in the Americas extended the worst start to a year in more than two decades after Barclays Plc said the shares may drop further as the slide in the Mexican peso adds to the company’s debt burden.

Cemex SAB slumped 7.2 percent to 7.47 pesos at the close of trading in Mexico City, bringing this month’s plunge to 21 percent. The decline was the biggest in the IPC stock index, and put the company’s valuation at the lowest level since 2012. Meanwhile, the peso has fallen 7.5 percent in 2016, the most among major currencies tracked by Bloomberg.

The tumble in Mexico’s currency would mean heftier liabilities for Cemex, which has 85 percent of its debt in dollars compared with only a quarter of its earnings before interest, taxes, depreciation and amortization in the U.S. currency. While there’s no concern over the company’s ability to pay its debt, the mismatch may put further pressure on stock valuations, according to Barclays’s analyst Benjamin Theurer.

“It can go lower,” Theurer, who has the equivalent of a hold recommendation for Cemex’s American depositary receipts, said in a note to clients. “We are not seeing any new triggers for CX shares in the short term.”

In the same report, he cut his forecast for Cemex’s ADR by 33 percent to $6. That would imply a 38 percent rally from Friday’s close. Still, the analyst said that a drop to $2.80 wouldn’t be “unrealistic” amid risks for a further devaluation of the peso, a bigger plunge in oil and slower construction activity in Mexico.

"If growth rates in the U.S. slow down in a meaningful way, people will start to worry," Theurer said. "This can lead the market to overreact."

The U.S. is Mexico’s largest trading partner. The Latin American nation’s spending is under pressure from the falling price of crude, which historically accounts for about a third of public revenue. Oil resumed its decline on Monday after the biggest two-day rally in more than seven years as concerns persist over ample U.S. stockpiles, steady production from Saudi Arabia and Russia and the outlook for increasing Iranian shipments after the end of sanctions.

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