Brazil’s sugar and ethanol producer, Cosan Limited (CZZ) was recently upgraded to an Outperform recommendation by us; inspired largely by the company’s long-term growth prospects. The stock was previously rated Neutral by us.
We are confident about Cosan’s performance in the years to come. Strategic acquisitions, growing sugar and ethanol demand, energy co-generation and transportation business seem to be the prime growth driving catalysts. Besides, renewal of the share buyback program, amounting to 2.6 million shares (or 0.6% of outstanding shares), will be an added advantage.
Leaving these positive features aside, newly formed Raizen, a joint venture of the company with Shell, enables better access to ethanol consumer market and increases competitiveness in biofuel and fuel distribution businesses.
Recently, Cosan reported its third quarter 2012 financial results. The company’s net income more than doubled in the quarter while the top line soared 33% year over year. EPADR stood at 30 cents while revenue came in at $6.3 billion.
The positive momentum, however, was offset by higher cost of sales and adverse weather conditions in the Central-Southern Brazil that severely affected production in the quarter. Crushed sugarcane volume went down by 27.3% year over year, while sugarcane production plummeted 18.9%. These negative factors notwithstanding, the company’s guidance is upbeat, which supports our view to a very great extent.
The current Zacks Consensus Estimate for the fiscal years 2012 and 2013 are 97 cents and $2.05 cents, representing a year-over-year decline of 11.82% and growth of 111.34%, respectively.
Cosan currently has a Zacks #1 Rank, translating into a Strong Buy rating for 1-3 months.
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