Saturday, April 25, 2009

Zacks on Gafisa

Zacks posted a bullish report on Gafisa (GFA) picked up by the wires. GFA is one of our favorites for the Growth Fund because of the shortage in Brazilian homes. This homebuilding stock has also been a favorite investment of Sam Zell.

The report by Zacks was very bullish for the company, but oddly they provided a conservative guidance for the stock with a target of only $16. Typical of conservative firms like Zacks and S&P is that they completely provided low multiples for high growth stocks. A 10 PE? Are they serious? The historical PE for the SP500 has been around 15. This stock is a decade or so away from being SP500 like. So really, a 10 PE???

Ironically the stock soared 12% on Friday to $15.66 or close to the target already. Clearly signs that Zacks has lowballed yet again.

  • We are reiterating our Buy recommendation on Gafisa S.A. (NYSE: GFA - News). We have been encouraged by the stimulus package and the new value-added tax relief recently announced by the Brazilian government.
  • Fourth quarter 2008 results were lower than expected, which is a clear indication that the international crisis has reached Brazil's construction sector. The recent acquisition of Tenda will enhance the company's presence in the low-income segment, which will be the focus of the Brazilian government. Thus, we expect Gafisa to benefit from the announced program in the following quarters.
  • Currently, Gafisa is trading at 7.7x 2009 revised EPS estimate. We reiterate our Buy recommendation on Gafisa, with a target price of US$16.25, representing a valuation between 9x and 10x our 2009 P/E, closer to the Bovespa benchmark for Brazilian stocks.

1 comment:

Stonefoxcapital said...

GFA closes at nearly $18 today. Guess Zacks was a little off already.