We recently maintained our Neutral recommendation on Cosan Limited (CZZ - Free Report) , anticipating the company to perform in line with the broader market.
Cosan is a well known sugar and ethanol producer, this being its core business. The company is also engaged in fuel and natural gas distribution, logistics operations, lubricants and specialties business, investments in agricultural land, and corporate structure and other investments.
Diversified operations have helped Cosan expand its product and services globally. The company has operations in Brazil and Europe, besides countries in the Middle East, Asia and North America. Also, efforts are being made to further strengthen the product portfolio through acquisitions and long-term contracts or agreements. The company’s association with Camil and its stake acquisitions in Comma, América Latina Logística (ALL) and Serviços e Tecnologia de Pagamentos S.A. (STP) would undoubtedly benefit the company.
Cosan has spent roughly R$2.2 billion in fiscal 2013 (Apr 2012 to Mar 2013) and has allocated R$2.8 billion – R$3.0 billion for capital spending in the calendar year 2013. Rebranding of Esso stations to Shell brand, focus on new contracts and improved services will aid Cosan in the quarters ahead.
Despite a compelling long-term growth prospect, we prefer to remain on the sidelines for Cosan.
In the third quarter 2013, sugar production was down 1% and crushed sugar volume decreased 2% due to unfavorable weather conditions. Radar revenue was down 23% due to lack of property sales during the quarter. Costs and expenses grew significantly to erode many of the benefits from revenue increases. Also, results were negatively impacted by foreign exchange variations losses, unrecorded deferred fiscal credits and higher financial expenses due to increase in debt levels.
Near-term risks including adverse weather conditions, rising competition, higher cost of sales and operating expenses as well as rising long-term debt might prove detrimental to the company’s performance.
Other Stocks to Consider
Cosan currently has a market capitalization of $3.7 billion and carries a Zacks Rank #2 (Buy). Other stocks worth considering in the industry include The Andersons, Inc. (ANDE - Free Report) , Exelon Corporation (EXC - Free Report) and Otter Tail Corporation (OTTR - Free Report) . While The Andersons carries a Zacks Rank #1 (Strong Buy), Exelon Corporation and Otter Tail both hold a Zacks Rank #2 (Buy).