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Bear of the Day

Brazilian steelmaker Gerdau S.A.'s (GGB) second quarter results were rather disappointing as the company's EPS of $0.18 plummeted 38% year over year and lagged behind the Zacks Consensus by 14 cents. Results were plagued by higher raw material costs that have been persistently affecting the company's financial health.

To add to the peril, Gerdau's positive momentum gets restricted by the headwinds arising from foreign currency fluctuation, cyclicality of the industry and stiff competition. Thus, we have downgraded our recommendation on the stock from Neutral to Underperform.

Gerdau's current trailing 12-month earnings multiple is 11.6X, compared with 27.4X for the peer group and 15.9X for the S&P 500. Our $7.75 target price is based on 9.6X 2011 earnings per ADR.

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