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CEMEX Not Expected to Hold Firm
Tuesday February 5, 12:58 pm ET
By Claudio Freitas, CFA


We are keeping our Sell rating on multi-national cement producer CEMEX, S.A. de C.V. (NYSE: CX - News). Results for the first, second, and third quarters of 2007 were in line with our expectations. However, we were disappointed by the company's fourth quarter operating results. The continued weak volumes/revenues in the key U.S. market are problematic.

We believe the construction business is already facing a more difficult environment, and that the short-term outlook for this industry in the U.S. is highly uncertain, mainly due to the continued problems in the subprime mortgage segment. Moreover, concerns about real estate prices in Spain are also troubling.

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CEMEX is currently trading at 9.5x our 2008 earnings estimate, and 7.3x EV/2008 EBITDA. The stock's P/E multiple represents a considerable discount to the industry mean of 14.3x. We believe this discount can be explained by the company's considerable exposure to emerging economies, the risks of the continued acquisitions and its bloated balance sheet. The EV/2008 EBITDA valuation also seems to be below the industry mean or median.

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.

Read the full analyst report on CX.




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