We are keeping our a Buy recommendation on Gafisa S.A. (GFA). Third quarter results were positive, the short-term outlook remains promising and the lower Brazilian interest rates have been helping the emergence of the construction sector.
We believe the less benign monetary policy in Brazil is a temporary problem. The potential for growth in the local mortgage business is fantastic, and the huge inventory of land already acquired, construction in progress and finished units all point to strong earnings and revenues in future quarters.
Our target price is $46.50, or 30x our 2008 earnings estimate. Currently, Gafisa is trading at 22.8x our 2008 estimated EPS. The valuation remains high because of the continued growth in the Brazilian real estate market and the very positive short-to-medium term outlook. We still believe Gafisa remains a good short-term alternative, since the company is becoming a true leader in a fast growing market and has a huge inventory of land and developments that will keep earnings up in the following quarters.
Read the full analyst report on GFA.
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