GGB Fundamental Research Investment Analysis, Gerdau S.A. ADS

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Gerdau S.A. ADS (GGB)

The Razor's Edge

2-Year Price History

Recent Price
(2/6/2009)
$7.76
52-Week Price
$4.18 - $26.22
Market Capitalization
$7.3 Billion
Dividend Yield
4.30%
Most Recent Dividend
$0.31

About Gerdau S.A. ADS

Gerdau S.A. ADS is considered to operate in the Basic Materials sector. They specifically operate in the Steel & Iron business segment contained within the Metals & Mining industry.

The Company is engaged in the production of crude steel and related long rolled products, drawn products and long specialty products.

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GGB Revenue

As a value investing shop, we are interested in seeing how GGB's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 0.72x and the low end of the range at 0.28x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for GGB of 0.35x is well below its normal historic Price to Sales levels. At a price of $7.76, GGB is 31% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

GGB Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. GGB is below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from GGB. For example, GGB's Cash Earnings ratio per share has fluctuated between 1.86 and 5.11 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where GGB is with respect to prior business periods.

So what does a Cash Earnings ratio below the historical norm mean for GGB? Generally, GGB's investors have paid slightly higher stock prices for this level of Cash Earnings, which bodes well as a return to historical norms is statistically likely. However, it is never a guarantee that history gives us proper direction, particularly in fluctuating market cycles. So by utilizing a long term view and incorporating other areas of analysis (like Sales, Dividends, and management analysis), each investor can gain a more complete view of GGB. Remember, that the average Cash Earnings level for GGB has been 3.48, so the current Cash Earnings level of 3.06 is a positive in our view, but by no means is it overwhelming.

GGB Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for GGB to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for GGB is $0.33 producing a current dividend yield of 4.25%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from GGB against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from GGB over previous years was 13.16% while the lowest dividend yield was 1.18%. While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as GGB that has a history of paying dividends it is disappointing to see their dividend yield drop so significantly. At this time, the current dividend yield is 40.73% below the median yield.

Peer Comparison

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Gerdau S.A. ADS Industry Grouping

(2/6/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding GGB) 11.42 4.73 » 212.43 2.82 1.23 » 12.33 16.89% 7.83%
*10 year range does not include current year values
Agnico-Eagle Mines Limited AEM $8.0 Billion $55.48 36.50 12.97 » 204.34 9.55 3.78 » 21.26 31.96% 7.09%
Peabody Energy Corp. BTU $7.7 Billion $28.90 4.97 2.48 » 30.37 1.00 0.32 » 3.96 10.98% 13.90%
Gerdau S.A. ADS GGB $7.3 Billion $7.76 3.06 1.32 » 12.43 0.35 0.20 » 1.36 37.10% 33.52%
Gold Fields Ltd. ADR GFI $7.2 Billion $10.99 8.20 4.52 » 128.57 1.82 1.09 » 6.57 15.92% 5.32%
Alcoa, Inc. AA $6.7 Billion $8.40 0.98 0.90 » 22.84 0.22 0.19 » 1.69 8.70% 11.78%
Yamana Gold, Inc. AUY $6.0 Billion $8.64 6.45 2.78 » 676.00 1.54 0.75 » 28.18 n/a 1.06%
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RazorWire™ & Community Discussion

Mad Money
1/23/2009 6:53 PM
Mad Money
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Key Fundamentals

GGB - Gerdau S.A. ADS Fundamentals
Price (2/6/2009) $7.76
Volume (2/6/2009) 7.0 Million
10 Day Average Volume 7.9 Million
13 Week Price Range $4.18 - $8.53
52 Week Price Range $4.18 - $26.22
LTM Revenue $24.1 Billion
 
Shares Outstanding (12/2007) 1.4 Billion
Market Capitalization $7.3 Billion
Shares Held By Institutions 149.2 Million
Institutional Holders 204
% Shares Held By Institutions 16%
Earnings Per Share (EPS) $1.21
P/E Ratio 3.30
Book Value Per Share $6.76
 
Gross Margin 32.20%
Quarterly Dividend 0.33
Dividend Yield 4.30%
Beta 2.19
Fiscal Year Ends December