Any GFA fans out there at this price?
This Brazilian Stock Bucks Emerging Markets Slow-Down
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 Stocks have pulled back quite a bit over fears of another recession in the United States. This has hit emerging market stocks particularly hard. But the Brazilian economy is showing no signs of a slowdown, leading to some very attractive valuations in Brazilian equities.
Gafisa S.A. ( GFA – Snapshot Report) is no exception. Brazil’s leading diversified national homebuilder is expected to grow EPS by 44% next year, but it trades at just 4.0x forward earnings. The company pays a dividend too that yields a hefty 4.1%.
Second Quarter Results
Gafisa reported strong second quarter results on August 11. Net revenues increased 12% year-over-year due to the success of newly launched projects. Moreover, the backlog of revenues to be recognized increased 5% from the last quarter.
The gross margin declined from 32.8% of revenue to 26.6%. The company noted, however, that it sees significant improvements in margins going forward due to the delivery of old lower-margin units.
GFA leveraged its fixed costs as selling, general, and administrative expenses declined from 13.1% of sales to 10.7% in the second quarter. Earnings per share came in at 7 cents, missing the Zacks Consensus Estimate of 27 cents. But Gafisa works on several long-term projects at once, so its results can be lumpy quarter-to-quarter.
Growth Ahead…and Income Too
Despite the earnings miss, analysts raised their estimates for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy). Based on consensus estimates, analysts expect 10% EPS growth this year and stellar 44% growth next year.
GFA is expected to report its results for the third quarter on November 15. In addition to strong growth, Gafisa offers a dividend that yields a juicy 4.1%.
Valuation
Brazilian stocks have taken a beating over the last year as investors shed risky assets. This has led to some compelling valuations though. |
