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On Monday, UBS analysts upgraded Gerdau S.A. (NYSE: GGB) stock rating from Neutral to Buy, raising the price target to R$22.00 from R$17.00. The steel manufacturer, currently trading at $2.97 with a market capitalization of $5.87 billion, received the upgrade following the US decision to increase import tariffs on steel to 50%, which UBS sees as a significant development for the company. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics.
UBS analysts noted that the tighter supply and demand dynamics for steel in the US, driven by the higher import tariffs, are expected to lead to increased end-product spreads and improved producer margins. This scenario prompted UBS to raise its EBITDA estimate for Gerdau for 2026 to R$13.2 billion, a 32% increase from previous estimates. The company’s current EBITDA stands at $1.51 billion, with a strong Financial Health Score of 3.09 (rated as GREAT) by InvestingPro, which offers comprehensive analysis through its Pro Research Reports covering 1,400+ top stocks.
The analysts highlighted that the consensus currently estimates EBITDA at around R$11 billion, with R$9-10 billion priced in. UBS also anticipates a reduction in capital expenditures from 2026 onwards, which is expected to lead to a significant expansion in free cash flow, with a projected yield of approximately 12% for the year. The company already demonstrates strong cash generation, with a current free cash flow yield of 15% and an attractive P/E ratio of 9.42.
UBS believes that cash returns could exceed free cash flow generation as Gerdau rebalances its capital structure. The analysts suggest that cash returns could reach 17%, which they consider too significant to overlook.
The revised outlook reflects UBS’s positive assessment of Gerdau’s potential financial performance in light of the recent changes in US trade policy, positioning the company favorably in the steel market.
In other recent news, Gerdau S.A. reported its first-quarter results for 2025 and announced plans to distribute dividends to its shareholders. The company filed these details with the U.S. Securities and Exchange Commission, highlighting its continued operational success in the steel industry. While specific figures on revenue and profit were not disclosed, the report indicates a robust financial position. Additionally, Gerdau confirmed its commitment to shareholder value by declaring a dividend, though the exact amount and record date were not specified.
UBS initiated coverage of Gerdau with a Neutral rating, setting a price target of R$20. UBS noted Gerdau’s strong position within the Brazilian Materials sector, emphasizing its geographic diversification and premium product portfolio. Despite these strengths, UBS mentioned potential delays in Gerdau’s "golden age" due to mixed demand outlooks and challenges in Brazil’s long steel business. The analysis suggested that Gerdau’s stock is trading at fair value, with expectations of below-average free cash flow equity yields. Investors will likely keep an eye on Gerdau’s financial outlook and market position, especially in the context of the steel industry and Latin American markets.
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