Gerdau(GGB) Seeking Alpha·2024-09-03 19:49Core Viewpoint - Gerdau S.A. is positioned to benefit from ongoing investments in the automotive industry, electric vehicles, and electrical transmission renovations globally, indicating significant undervaluation in its stock price [3][26]. Company Overview - Gerdau S.A. is the largest Brazilian steel producer with over 100 years of experience in the industry, operating mills in multiple countries including Brazil, Canada, the U.S., and several Latin American nations [3][4][5]. - The company is also the largest recycling company in Latin America, which enhances its competitive position [5]. Financial Performance - In the last quarterly report, Gerdau reported an EPS GAAP of 0.01, but revenue fell short by 2.94 billion [6][5]. - Analysts project revenue growth for 2026, 2027, and 2028, suggesting a positive long-term outlook [5]. Market Demand Drivers - Significant investments in electric vehicles and renewable energy are expected to drive steel demand, particularly in North America, Europe, and China [7][8]. - The automotive steel market was valued at approximately 325 million, which could enhance its cash position for future investments [13]. Currency Impact - The depreciation of the Brazilian real against stronger currencies could improve Gerdau's financials, as it receives payments in dollars and euros while incurring expenses in reais [14][15]. Debt Management - Gerdau's management has committed to maintaining a net debt/EBITDA ratio of 1.5x or lower, with a weighted average cost of debt around 5.4% [16]. Future Projections - Using a WACC of 15% and a perpetuity growth rate of 3%, the implied enterprise value is estimated at 6.28 per share [20][22]. - Gerdau's valuation metrics indicate it is significantly undervalued compared to competitors, with a P/E ratio of 7.80 compared to a sector median of 18.53 [23].