On May 24, 2016, Zacks Investment Research downgraded Cosan Limited to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies carrying a Zacks Rank #4 have chances of underperforming in the broader market over the upcoming quarters.

Why the Downgrade?

Increasing cost of sales and operating expenses are currently weighing on Cosan’s aggregate margins. Moreover, higher debt burden is increasing the company’s financial obligations and further hampering its near-term growth prospects. We also note that unfavorable weather conditions, especially drought, frost and heavy rainfall, can severely impact sugarcane production and hence, hurt the company's crushing activities going forward.

In addition, the company's international presence has exposed it to geo-political and foreign exchange fluctuation risks. Moreover, Cosan is exposed to volatility in domestic and international supply and demand due to high cyclicality of the industry. Furthermore, stiff competition exposes the company to risks of market share loss. This is because any successful strategic process made by a peer might substantially lower demand for the company’s products and services.

Analysts remain cautious about the stock, which is evident from the downward revision in the Zacks Consensus Estimate over the past 90 days. As a result, estimates fell roughly 7.1% to 39 cents per share for 2016 and 49.4% to 44 cents for 2017.

Stocks to Consider

Some better-ranked stocks in the industry include Avista Corp. (AVA Quick QuoteAVA - Free Report) , Black Hills Corporation (BKH Quick QuoteBKH - Free Report) and Chunghwa Telecom Co., Ltd. (CHT Quick QuoteCHT - Free Report) . All the three companies presently hold a Zacks Rank #2 (Buy).

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