Gerdau Ameristeel Corp.

Gerdau Ameristeel is a North American steel manufacturer seeing big gains as steel prices rise and demand remains strong. GNA has surprised on earnings three quarters in a row by an average of 7.27 percent and just announced a 25 cent special dividend.

Full Analysis

Gerdau Ameristeel Corp. (GNA - Snapshot Report), a Zacks #1 Rank (Strong Buy), is the fourth largest steel company and the second largest minimill steel producer in North America. Headquartered in Toronto with executive offices in Tampa, Fla., the company has the capacity to manufacture over 12 million tons of mill finished steel products annually. Through a network of minimills, steel scrap recycling facilities, and downstream operations, the company serves customers throughout North America.

The company has been on a growth spurt through expansion of current facilities and by acquisitions.

In late January, GNA announced that they would be expanding their Jacksonville Mill which would add approximately 400,000 tons to the rolling mill. The plant will be able to serve the entire Southeastern United States.

On Feb 13, Gerdau also announced that it agreed to buy Century Steel Inc. for about $151.5 million. Century Steel is a Nevada-based structural steel contractor with fabrication plants that makes 250,000 tons a year. The deal is expected to close at the end of the first quarter.

The company reported fourth-quarter earnings on Feb 13 and beat analysts' consensus estimates by 4 cents. Net income increased 112 percent to $141.4 million, or 37 cents per share, for the fourth quarter from $66.7 million, or 22 cents per share, for the year-ago period. Analysts' consensus estimates were at 33 cents per share for the quarter.

For the year, the company recorded a record level of annual net income, an increase of 44 percent over 2006. Net income was $537.9 million or $1.65 per share in 2007 compared to net income of $374.6 million or $1.23 per share for the year-ago period.

Net sales for the fourth quarter also skyrocketed, increasing 70 percent to $1.7 billion from $1.0 billion in the fourth-quarter 2006. Additionally, average mill finished steel selling prices for the fourth quarter increased 17 percent over the year-ago time period.

After a great 2007, the company continues to be upbeat about 2008.

"Despite signs of a slowing North American economy, as we enter 2008, market conditions remain positive. Import levels remain lower than recent years, global steel demand and prices are creating export opportunities, and inventory levels in North America remain at low levels throughout the system. We have announced price increases in order to offset increases in scrap and other input costs and we remain focused on keeping metal spreads robust" said Mario Longhi, President and CEO.

After the record year, the Board of Directors on Feb 12 approved a special dividend of 25 cents a share, payable March 13 to shareholders of record at the close of business on Feb 28.

The company has surprised on estimates three quarters in a row by an average of 7.27 percent. One covering analyst out of seven raised full year estimates by six cents in the last 30 days to $1.66 from $1.60.

GNA is cheap. The company has a P/E of 8.42, which is under the industry average of 11.9. GNA's price to book is 1.92. The company also has a five year average return on equity (ROE) of 17.72 percent.