$51 Target on Brazilian Steeler SID

We are keeping our Buy recommendation on Companhia Siderurgica Nacional (SID - Analyst Report). We are encouraged by the company's solid 2007 results and the positive figures for the first quarter 2008. The news regarding the increase in iron ore prices was also very positive.

The economic environment in Brazil remains encouraging despite the Central Bank’s recent decision to raise interest rates. Moreover, the demand from China is still strong, the Casa de Pedra project is on track and the recent upgrade of Brazil helped local stocks.

The possibility of an IPO of Namisa is also very encouraging. At its current price, the stock trades at 18.1x our 2008 earnings estimates, higher than the industry mean and median. The steel industry continues to trade with a discount to the S&P due to the risk of a slowdown in the U.S., increasing Chinese production, and increasing raw material prices. We believe the current premium is fair since SID has been performing much better than other comparable steel producers, particularly Gerdau (GGB - Analyst Report), another important Brazilian steel maker.

SID has been able to take advantage of its integrated nature and its considerable growth outlook for its mining business. First quarter of 2008 results were very positive and the medium term growth outlook is quite encouraging due to the Casa de Pedra and Namisa projects. The possibility of an IPO for Namisa is even more interesting.

All considered, we are keeping our current Buy recommendation on SID. Our target for SID is $51, representing a P/E around 20x our 2008 earnings estimates, representing a considerable premium over the industry average thanks to its integrated nature and its fast growing Casa de Pedra project.

Read the full analyst report on SID.

Read the full analyst report on GGB.