Last fall, Zacks senior Latin American market analyst Claudio Freitas, CFA downgraded Brazilian paper goods producer Aracruz Celulose (ARA) from Buy to Hold. He reiterated his outlook in a research report released not long ago:
'We are keeping our current Hold recommendation on Aracruz Celulose S.A. The company's net income for the fourth quarter of 2007 was lower than expected. Nevertheless, the international demand for pulp and paper remains quite heated, and the short-term outlook for pulp prices is positive.
'However, the continued strength of the Brazilian real, which is now at its highest value in more than six years, undermines Aracruz's exports and increases its realdenominated production costs. Currently, Aracruz's ADR is trading at 15.5x our 2008 earnings estimate, slightly higher than the industry mean of 13.7x.
'Additionally, if we consider the price/sales ratio, the stock does not seem to be undervalued at all. We believe the above-average valuation is a result of the favorable climate conditions in Brazil which makes the company much more efficient than its competitors -- for example, we can see that Votorantim Celulose (VCP) also has a high price/sales ratio.'
Read the full analyst report on TRC.
Read the full analyst report on TRC.
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