February 5, 2008

Cemex: A Difference of Opinion

Zacks has a small write-up of Cemex who reported 4th quarter results yesterday. They have a sell on the stock with a $20.50 price target.

"In our opinion, the stock's valuation deserves a discount, due to the still above-average leverage, the considerable exposure to some volatile Latin American economies and its huge exposure to the U.S. and Spanish markets, both highly affected by concerns over housing prices. Even though the good guidance for the fourth quarter 2008, we are keeping our Sell recommendation on CX. We expect the stock to trade with an EV/2008 EBITDA multiple between 6x and 6.5x. Our target price is US$20.50."

By contrast, the Fool has written two articles listed here and here regarding the prospect of the stock. They paint a much different picture:

"U.S. pricing is holding up. While housing in the U.S. has had some effect on the local markets, our nation uses far more cement each year than our total domestic capacity. As the company's management indicated during its call, high shipping rates are keeping domestic cement prices from slipping. "

"Housing doesn't use as much cement as you probably assume. A bigger market is public works, such as roads and highways, the spending for which has been supported by a series of highway bills. The latest was the 2005 version, which will ultimately provide about $286.4 billion in funding. "

"When the turn comes, Rinker will benefit Cemex in the U.S. In Florida, for instance, by adding Rinker's two cement plants to its one, Cemex now boasts about 40% of the state's cement manufacturing capacity. "

The Fool has Cemex listed as a Global Gains selection and a Stock Advisor selection.

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