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Companhia Siderurgica Nacional first quarter results were far from remarkable. It was saddled by weak margins, rising cost of materials and lower profits. Earnings dropped to 4 cents per ADR in the first quarter. Rising competition and very high debt levels could impede further growth. On the positive side, worldwide steel consumption and local demand are set to rise as the Brazilian government is set to host the 2014 soccer world cup and 2016 Olympic Games. The World Steel Association predicts that steel demand will increase by 3.6% in 2012, and 4.5% in 2013. It also has a diverse portfolio which is another positive as non core businesses account for approximately 40% of its revenues.

Reasons to be bullish on Companhia Siderurgica Nacional (SID):

  • A good yield of 6.4%
  • A great five year dividend growth rate of 19.7%
  • $100K invested for 10 years would have grown to $1.8 million
  • Net income increased from $1.3 billion in 2009 to $2.2 billion in 2011
  • Cash flow per share increased from $1.22 in 2009 to $1.78 in 2011
  • Sales rose from $7.6 billion in 2009 to $9.1 billion in 2011
  • Annual EPS before NRI increased from $1.11 in 2007 to $1.39 in 2011
  • A decent interest coverage ratio of 2.6
  • Year over projected growth for 58% for 2013
  • A profit margin of 19%
  • A very good current and quick ratio of 3.09 and 2.8 respectively
  • A manageable payout ratio of 50%
  • A retention ratio of 50%

Areas of concern

Steel is a highly cyclical commodity as demand for it is based on the macroeconomic outlook of the world economy. Changes in the macroeconomic outlook can have a positive or negative impact on earnings. Any significant decrease in demand both locally and from overseas could have an adverse impact on the company.

  • A negative levered free cash flow -$ 956 million
  • A negative quarterly earnings growth rate of -82%
  • A very low free cash flow yield
  • A very high long-term debt to equity ratio of 3.52
  • Year over year projected growth rate for 2012 of -37%

Suggested strategy for the bulls

It is still in a downtrend and could potentially test its 5 year lows. Traders should consider waiting for a test of the 4.60-5.00 ranges before opening up positions. An alternative strategy would be to wait for a test of 5.00 and then sell puts at strikes you would not mind owning the stock at.

Company: Companhia Siderurgica Nacional

Levered Free Cash Flow = -956.07M

Brief Overview

  1. Relative Strength 52 weeks = 17
  2. Cash Flow 5-year Average = 1.37
  3. Profit Margin = 19.24%
  4. Operating Margin = 28.3%
  5. Quarterly Revenue Growth = 2.8%
  6. Quarterly Earnings Growth = - 8.2%
  7. Operating Cash Flow = 1.76B
  8. Beta = 2.05

Growth

  1. Net Income ($mil) 12/2011 = 2203
  2. Net Income ($mil) 12/2010 = 1437
  3. Net Income ($mil) 12/2009 = 1320
  4. Net Income Reported Quarterly ($mil) = 63
  5. EBITDA ($mil) 12/2011 = 2822
  6. EBITDA ($mil) 12/2010 = 1991
  7. EBITDA ($mil) 12/2009 = 2096
  8. Cash Flow ($/share) 12/2011 = 1.78
  9. Cash Flow ($/share) 12/2010 = 1.35
  10. Cash Flow ($/share) 12/2009 = 1.22
  11. Sales ($mil) 12/2011 = 9130
  12. Sales ($mil) 12/2010 = 6289
  13. Sales ($mil) 12/2009 = 7690
  14. Annual EPS before NRI 12/2007 = 1.11
  15. Annual EPS before NRI 12/2008 = 1.56
  16. Annual EPS before NRI 12/2009 = 1.88
  17. Annual EPS before NRI 12/2010 = 1.02
  18. Annual EPS before NRI 12/2011 = 1.39

Dividend history

  1. Dividend Yield = 6.4
  2. Dividend Yield 5 Year Average 03/2012 = 3.88
  3. Dividend 5 year Growth 03/2012 = 19.74

Dividend sustainability

  1. Payout Ratio 03/2012 = 0.5
  2. Payout Ratio 5 Year Average 03/2012 = 0.33

Performance

  1. 5 Year History EPS Growth 03/2012 = -14.95
  2. ROE 5 Year Average 03/2012 = 42.11
  3. ROE 5 Year Average 12/2012 = 42.07
  4. Return on Investment 03/2012 = 9.57
  5. Debt/Total Cap 5 Year Average 03/2012 = 61.81
  6. Current Ratio 03/2012 = 3.09
  7. Current Ratio 5 Year Average = 2.64
  8. Quick Ratio = 2.8
  9. Cash Ratio = 2.55
  10. Interest Coverage Quarterly = 2.60

Interesting companies

For investors looking for other ideas detailed data has been provided on two additional companies.

Company: Fidelity Nat Information services (FIS)

Levered Free Cash Flow = $992.91M

Brief Overview

  1. Percentage Held by Insiders = 0.93
  2. Number of Institutional Sellers 12 Weeks = 3
  3. Relative Strength 52 weeks = 69
  4. Cash Flow 5-year Average = 4.1
  5. Profit Margin = 7.99
  6. Operating Margin = 19.02
  7. Quarterly Revenue Growth = 4.6%
  8. Quarterly Earnings Growth = - 6.1
  9. Operating Cash Flow = 1.12B
  10. Beta = 0.93

Growth

  1. Net Income ($mil) 12/2011 = 470
  2. Net Income ($mil) 12/2010 = 405
  3. Net Income ($mil) 12/2009 = 106
  4. EBITDA ($mil) 12/2011 = 1685
  5. EBITDA ($mil) 12/2010 = 1429
  6. EBITDA ($mil) 12/2009 = 737
  7. Net Income Reported Quarterly ($mil) = 87
  8. Cash Flow ($/share) 12/2011 = 4.58
  9. Cash Flow ($/share) 12/2010 = 4.45
  10. Cash Flow ($/share) 12/2009 = 2.23
  11. Sales ($mil) 12/2011 = 5746
  12. Sales ($mil) 12/2010 = 5270
  13. Sales ($mil) 12/2009 = 3770
  14. Annual EPS before NRI 12/2007 = 3.4
  15. Annual EPS before NRI 12/2008 = 1.49
  16. Annual EPS before NRI 12/2009 = 1.63
  17. Annual EPS before NRI 12/2010 = 2.02
  18. Annual EPS before NRI 12/2011 = 2.27

Dividend history

  1. Dividend Yield = 2.5

Dividend sustainability

  1. Payout Ratio =23%

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 12.67
  2. Current Ratio = 1.6
  3. Current Ratio 5 Year Average = 1.33
  4. Quick Ratio = 1.24
  5. Cash Ratio = 0.49
  6. Interest Coverage Quarterly = 3.51

Company: Bristol-Myers (BMY)

Levered Free Cash Flow = 5.16B

Brief Overview

  1. Percentage Held by Insiders = 0.64
  2. Number of Institutional Sellers 12 Weeks = 8
  3. Relative Strength 52 weeks = 86
  4. Cash Flow 5-year Average = 2.19
  5. Profit Margin = 17.8%
  6. Operating Margin = 33.9%
  7. Quarterly Revenue Growth = 4.8%
  8. Quarterly Earnings Growth = 11.7%
  9. Operating Cash Flow = 4.75B
  10. Beta = 0.23
  11. Percentage Held by Institutions = 68%
  12. Short Percentage of Float = 1.8%

Growth

  1. Net Income ($mil) 12/2011 = 3709
  2. Net Income ($mil) 12/2010 = 3102
  3. Net Income ($mil) 12/2009 = 10612
  4. Net Income Reported Quarterly ($mil) = 1101
  5. EBITDA ($mil) 12/2011 = 7782
  6. EBITDA ($mil) 12/2010 = 6815
  7. EBITDA ($mil) 12/2009 = 6309
  8. Cash Flow ($/share) 12/2011 = 2.79
  9. Cash Flow ($/share) 12/2010 = 2.61
  10. Cash Flow ($/share) 12/2009 = 2.21
  11. Sales ($mil) 12/2011 = 21244
  12. Sales ($mil) 12/2010 = 19484
  13. Sales ($mil) 12/2009 = 18808
  14. Annual EPS before NRI 12/2007 = 1.38
  15. Annual EPS before NRI 12/2008 = 1.74
  16. Annual EPS before NRI 12/2009 = 1.85
  17. Annual EPS before NRI 12/2010 = 2.16
  18. Annual EPS before NRI 12/2011 = 2.28

Dividend history

  1. Dividend Yield = 4.00
  2. Dividend Yield 5 Year Average = 5.00%
  3. Dividend 5 year Growth = 3.44%

Dividend sustainability

  1. Payout Ratio = 0.58
  2. Payout Ratio 5 Year Average = 0.69

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 3
  2. 5 Year History EPS Growth = 13.58
  3. ROE 5 Year Average = 26.3%
  4. Current Ratio = 1.63
  5. Current Ratio 5 Year Average = 1.9
  6. Quick Ratio = 1.79
  7. Cash Ratio = 1.31
  8. Interest Coverage Quarterly = 47.40

Conclusion

Long-term investors can use strong pullbacks to open up positions in stocks they would not mind owning for the long haul. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors looking for other ideas might find this article to be of interest: Corning Inc: A Play With Potential That Is Trading below book.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: Companhia Siderurgica Nacional: Time To Jump In Or Sit On The Sidelines?

Additional disclosure: EPS and Price vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Ycharts data sourced from ycharts.com.