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Cosan (CZZ) to Gain From Diversified Business Structure

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We issued an updated research report on Cosan Limited (CZZ - Free Report) on Nov 21. Healthy sugar and ethanol businesses as well as growth opportunities from natural gas and fuel distribution, lubricants and logistics businesses will drive growth.

The stock carries a Zacks Rank #2 (Buy).

Why Should Investors Add Cosan’s Stock to Portfolio

Before we begin the discussion, a quick recap of the company’s recently reported third-quarter results will give an insight about the company’s financial performances. Adjusted net income in the quarter increased remarkably over the year-ago tally on the back of revenue growth and a fall in financial expenses. Fuel volumes sold in the quarter rose 4.2% year over year while sugar and ethanol volume sold grew 16.7% and 27.3% respectively.

Strengthening Sugar & Ethanol Business: The company is the world’s largest producer and processor of sugarcane. Notably, it crushed approximately 59.4 million tons of sugarcane in crop year April 2016-March 2017. Sugarcane is the main raw material used for producing sugar and ethanol. The company is the largest sugar and ethanol producer in Brazil as well as one of the largest in the world.

For the crop year April 2017-March 2018, the company anticipates volume of sugarcane crushed within 59-63 million tons. Sugar volume produced is likely to come in the range of 4.3-4.7 million tons while ethanol volume production is expected in the range of 2-2.3 billion liters. Volume of energy sold is estimated within 2.2-2.4 million MWh.

Additional Business Opportunities: A diversified business structure has been advantageous for Cosan over time. Besides its sugar and ethanol businesses, the company is engaged in the distribution of fuels (through Raizen Combustiveis) and natural gas (Comgas); lubricants, basic oils and specialties (Moove); investments (Cosan Corporate) and logistics businesses (Rumo).

In the quarters ahead, Raizen Combustiveis will gain from its efforts to enhance distribution network, improve efficiency as well as selective positioning of logistics. At third-quarter end, the company had a network of 6,138 Shell branded service stations. Additionally, Comgas will gain from recovery in the country’s industrial activity, increasing industrial applications of natural gas and expansion in networks. Moove will benefit from its customer base in Brazil and expand internationally to tap business opportunities. Rumo will gain from investments to strengthen its rail yards, terminals and rail lines plus benefit from its cost reduction efforts as well.

Price Performance and Earnings Estimates: Market sentiments have been positive for Cosan over time. Last year, the American Depository Receipts of this agriculture products company has yielded 29%, thus outperforming the 15.1% rally of the industry it belongs to.



 

The stocks’ Zacks Consensus Estimate stands at 98 cents for 2017 and $1.81 for 2018, reflecting year-over-year growth of 197% and 84.7% respectively.

Other Stocks to Consider

Some other stocks worth considering in the Zacks Basic Materials sector include Kraton Corporation (KRA - Free Report) , International Flavors & Fragrances Inc. (IFF - Free Report) and Monsanto Company (MON - Free Report) . While Kraton sports a Zacks Rank #1 (Strong Buy), both International Flavors & Fragrances and Monsanto carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kraton’s earnings estimates for 2017 and 2018 have improved over the past 60 days. Also, the company pulled off an average positive earnings surprise of 32.88% in the last four quarters.

International Flavors & Fragrances’ earnings estimates for 2017 and 2018 have been revised upward over the last 60 days. Also, the company delivered an average positive earnings surprise of 3.05% in the trailing four quarters.

Monsanto’s earnings estimates for fiscal 2018 and fiscal 2019 have increased over the past 60 days. The company’s average beat for the last four quarters was 244.78%.

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