Gafisa SA (GFA) is cashing in on Brazil’s growing need for housing as sales climbed in the third quarter. GFA has attractive valuations. It is trading at just 11.3x forward earnings.
Company Description
Gafisa is one of Brazil’s largest homebuilders. It has completed more than 980 developments and constructed over 11 million square meters of housing. Gafisa serves a wide market of buyers, including the lower income housing segment through its majority ownership stake in Construtora Tenda, S.A., a separate publicly-traded company.
Third Quarter Sales Jumped 48%
On Nov 5, Gafisa reported third quarter results which saw net operating revenues rise 131% to R$877.1 million from R$378.9 million. Sales rose 48% to R$800 million.
Brazil’s economy has recovered quicker from the recession than other countries.
“The gradual recovery in the economic climate and real estate market during the quarter supported the Company’s strong sales and net revenue performance that positively impacted the Company’s adjusted EBITDA margin of 20.4%, a 140 basis point increase when compared to the previous quarter,” said Wilson Amaral, CEO.
“This improvement also reflects Tenda’s leadership and capacity to innovate in the affordable housing segment as it both doubled its quarterly pre-sales as compared to the prior year,” he added.
Despite the credit crunch of 2009, the company grew its cash position by 4% to R$1.1 billion from R$1.05 billion as of the end of June. It continued a streak of growing its cash and cash equivalents which were just R$777.4 million at the end of third quarter of 2008.
Zacks Consensus Estimates Rise
Gafisa is bullish about 2010. It projects a strong 2010 as Brazil’s is running a housing deficit of 7 million families and new household formation of 1.5 million per year.
Analysts are also optimistic about growth potential. For 2009, analysts polled by Zacks expect 234.48% earnings growth in 2009. The 2009 Zacks Consensus Estimate has jumped 32 cents to $1.94 per share in the last week.
The growth in earnings is expected to continue into 2010, as the 2010 Zacks Consensus gained 20 cents to $2.87 per share in the last 7 days. That is earnings growth of 47.68%.
Gafisa is expected to report fourth quarter results on Mar 9.
Value Fundamentals
Gafisa SA is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 2.11. Gafisa also has a solid 1-year return on equity (ROE) of 14.48%, which is much higher than the industry average of 8.5%.
Gafisa also pays a dividend, with a current yield of 0.70%.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
