Audit, Management Shuffle Weigh on Brazilian Homebuilder Gafisa

Jul. 6.11 | About: Gafisa S.A. (GFA)

By Tim Seymour

Brazil’s homebuilders, hurting since late last year, are still suffering. Today’s news from Gafisa (NYSE:GFA) only heightens the pain. Gafisa Chief Executive Wilson Amaral de Oliveira unexpectedly resigned back in May and was only formally replaced by Chief Financial Officer Alceu Duilio Calciolari on Monday. At the same time, Rodrigo Osmo was tapped as the new CFO.

Now there are reports in the Brazilian financial press that Gafisa will have to adjust its 2009 financial results to accommodate additional requests from its new auditor.

This doesn’t signal a change to Gafisa’s Brazilian GAAP numbers, but is more a matter of Ernst & Young taking over from local auditor Tersa, which it acquired last year.

In the face of the still-unexplained CEO resignation, this once-beloved stock has shifted from a crowded long trade to a crowded short.

Are they going out of business? Probably not.

Is GFA a buy here? Maybe not yet.

Meanwhile, daring traders may find opportunities in GFA’s beaten-down chart:

Historically, August and the start of the Brazilian construction season has been the time for traders to reappraise Gafisa and the Brazilian homebuilding sector in general.

The next few months may shed more light on whether this stock will be free of its accounting woes or more deeply embroiled in controversy.