Back to top

Analyst Blog

We recently upgraded our recommendation on Cosan Limited (CZZ - Analyst Report), a leading sugar and ethanol producers in Brazil, from Underperform to Neutral.

Why the Upgrade?

Long-term growth prospects appear quite compelling for Cosan. The company’s core sugar and ethanol businesses are prospering well as demand is growing rapidly. In addition to this, exposure into energy, food, logistics, infrastructure and farmland development and management businesses are bearing fruits as well.

For 2014, Cosan provided an impressive guidance anticipating higher revenues and earnings before interest, taxes, depreciation and amortization (EBITDA) compared with that for 2012. The guidance is based on the expectation that the business segments will perform well, going ahead. The mid-point of the crushed sugarcane volume guidance represents a 7.6% increase over the 2012 volume.
    
Cosan has spent roughly R$2.2 billion in fiscal 2013 to improve its capacity and services. During the year, the company completed rebranding of its Esso stations to the Shell brand. For 2014, further investments of roughly R$3.1–R$3.35 billion has been planned.

Additionally, the formation of new business units (Radar and Comgas), the company’s association with Camil, and its stake acquisitions in Comma and América Latina Logística (ALL), would undoubtedly result in increased competitiveness in their respective businesses.

In view of the developments mentioned above, we upgraded Cosan. However, the near-term risks surrounding the stock restricted the upgrade to a Neutral recommendation only. Adverse weather conditions, rising competition, higher cost of sales and services as well as rising long-term debt are detrimental to the company’s performance.

In the fourth-quarter fiscal 2013 results, Cosan recorded a 49.6% year- over-year increase in cost of sales and services while its operating expenses (selling, general and administrative expenses) grew by 49.6%. The company’s long-term debt, though down a meager 3.6% on a sequential basis, was as high as $9.7 billion.

Other Stocks to Consider

Cosan currently has a market capitalization of $4.2 billion. Other players that are worth a mention in the industry are Monsanto Company (MON - Analyst Report), Hillshire Brands Company (HSH - Snapshot Report) and The Andersons, Inc. (ANDE - Analyst Report).
 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SIGNET JEWE… SIG 116.37 +7.72%
CHYRONHEGO… CHYR 2.72 +5.84%
US SILICA H… SLCA 70.72 +4.00%
MALLINCKROD… MNK 80.11 +2.32%
RF MICRO DE… RFMD 11.76 +2.31%