Zacks Investment Research downgraded Cosan Limited (CZZ - Analyst Report) to a Zacks Rank #5 (Strong Sell) on February 16, 2013.
Why the Downgrade?
Following the release of the company’s fiscal third quarter 2013 (ended December 31, 2012) financial results on February 6, 2013, earnings estimates for this $5.4 billion company witnessed a downward revision. In the last 30 days, the Zacks Consensus Estimate for fiscal 2013 went down by 8.6% to 74 cents while that for 2014 decreased by 3.4% to $1.12 per share.
Though the improvement in adjusted net income in the quarter was impressive, increases in cost of sales and operating expenses impacted the company’s margin profile. In the third quarter, Cosan recorded a solid 29.4% year-over-year increase in cost of sales while selling and general & administrative expenses recorded annual increase of 46.2% and 60.0%, respectively.
Of all the operating segments of the company, Radar, which is responsible for all investment activities in agricultural land, failed to gain momentum and registered a 13.4% decline in revenue. Revenue that was generated, was primarily derived from leasing activities. No lands were sold during the quarter.
Apart from the downward revision in earnings estimates, negative 27.3% of average earnings surprise in the last trailing four quarters triggers our concern.
Other Stocks to Consider
Cosan, primarily a sugar and ethanol producer, also engages in energy, food, logistics, infrastructure, and farmland development and management businesses. Other players to watch out for in the industry are Tyson Foods, Inc. (TSN - Analyst Report) and Hillshire Brands Company each with a Zacks Rank #1 (Strong Buy) while Monsanto Company (MON - Analyst Report) has a Zacks Rank #2 (Buy).