Gafisa S.A.

Stocks have pulled back quite a bit over fears of another recession in the United States. This has hit emerging market stocks particularly hard. But the Brazilian economy is showing no signs of a slowdown, leading to some very attractive valuations in Brazilian equities.

Gafisa S.A. (GFA - Snapshot Report) is no exception. Brazil's leading diversified national homebuilder is expected to grow EPS by 44% next year, but it trades at just 4.0x forward earnings.

The company pays a dividend too that yields a hefty 4.1%.

Second Quarter Results

Gafisa reported strong second quarter results on August 11. Net revenues increased 12% year-over-year due to the success of newly launched projects. Moreover, the backlog of revenues to be recognized increased 5% from the last quarter.

The gross margin declined from 32.8% of revenue to 26.6%. The company noted, however, that it sees significant improvements in margins going forward due to the delivery of old lower-margin units.

The company leveraged its fixed costs as selling, general, and administrative expenses declined from 13.1% of sales to 10.7% in the second quarter. Earnings per share came in at 7 cents, missing the Zacks Consensus Estimate of 27 cents. But Gafisa works on several long-term projects at once, so its results can be lumpy quarter-to-quarter.

Growth Ahead...and Income Too

Despite the earnings miss, analysts raised their estimates for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy). Based on consensus estimates, analysts expect 10% EPS growth this year and stellar 44% growth next year.

The company is expected to report its results for the third quarter on November 15.

In addition to strong growth, Gafisa offers a dividend that yields a juicy 4.1%.

Valuation

Brazilian stocks have taken a beating over the last year as investors shed risky assets. This has led to some compelling valuations though.

Shares trade at just 4.0x 12-month forward earnings, a significant discount to the industry average of 12.6x and its historical median of 9.3x. It's also trading below book value at 0.6x, well below the peer group multiple of 2.1x.

The Bottom Line

With strong growth prospects, rising earnings estimates and solid income, Gafisa looks like a tremendous value at just 4x forward earnings.

Read the June 24 article here.

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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.