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Companhia Siderurgica Nacional - ADR (SID)

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We believe Companhia Siderurgica Nacional, or CSN (SID) has rising manufacturing costs, high cyclicality and growing competition in the industry. These remain major growth impediments for the company. In the first quarter of 2011, the company posted EPADR of $0.25, which was well below the Zacks Consensus of $0.40.

In the first quarter of 2011, cost of goods sold went up 25.4% year over year, leading to a 3% decline in gross margin. Also, CSN's debt levels are escalating, due primarily to funding the company's investment plans.

Thus, anticipating lack of positive catalysts in the near term, we maintain an Underperform recommendation on the ADR. Our target price of $11.00 is based on 7.8x P/E on the 2011 EPS estimate.

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