Why Companhia Siderurgica Nacional Stock Just Popped 13%

MarketsMotley Fool

What happened

Brazilian steelmaker Companhia Siderurgica Nacional (NYSE: SID) stock lost 20% of its value in last month's sell-off, hurt by a shareholder dispute with management and (probably) continued generally negative sentiment regarding South American stocks. This morning, however, shares of CSN are turning around, and trading up 13% as of 12:30 p.m. EDT.

Continue Reading Below

For that, you can thank the friendly analysts at Credit Suisse, who just gave the company an upgrade.

So what

Despite negative sentiment regarding Companhia Siderurgica Nacional stock, says Credit Suisse, the company's "business fundamentals remain intact and that global steel fundamentals are widely unchanged." Accordingly, Credit Suisse has decided to upgrade CSN stock to outperform in anticipation of a bounceback as investors' mood improves.

The analyst did not state a target price.

Now what

Sentiment notwithstanding, Companhia Siderurgica Nacional's business has been performing pretty well of late, with revenue rising substantially over the past two years, losses evaporating, and profits rolling in at a strong $423 million over the past 12 months, according to data from S&P Global Market Intelligence.

Based on those earnings, CSN stock currently sells for about 6.7 times trailing earnings. The company carries substantial debt, though, giving it an enterprise value of $9.8 billion once debt is factored in (market cap is only $2.8 billion). Thus, CSN's debt-adjusted P/E ratio is a much loftier 23 times earnings.

I don't mean to ruin today's party, but I have to say that given the debt load, I'm a lot less optimistic than Credit Suisse seems to be about this company's shares being undervalued.

10 stocks we like better than Companhia Siderurgica NacionalWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Companhia Siderurgica Nacional wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 4, 2018

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.