Buy Brazilian Builder Gafisa

We are keeping our Buy recommendation on Gafisa S.A. (GFA - Snapshot Report). First quarter 2008 results were positive. The short-term outlook remains promising as the company's sales are strong and the emergence of a domestic mortgage market has been fueling the Brazilian construction sector.

We believe the less benign monetary policy in Brazil is just a temporary problem. The potential for growth in the local mortgage business is fantastic, and the huge inventory of land already acquired, construction in progress, bank of land and finished units all point to strong earnings and revenues in future quarters.

Currently, Gafisa is trading at 14.2x our 2008 estimated EPS. The valuation is now more attractive as a result of the continued growth on the company's sales and earnings. We remain positive on the Brazilian real estate market for the short-to-medium term outlook.

We are expecting a very strong growth in the company's earnings in 2008, thus our estimated P/E is quite attractive. However, even if we consider a less optimistic view on the company's short-term perspective, the valuation still seems attractive.

We believe Gafisa remains a good short-term play. Our target price of US$62.00, represents a valuation of 20x our 2008 P/E, in line with the industry median.

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