Cosan Brazilian Ethanol a Hold
We are keeping our Hold recommendation on Cosan Ltd. (CZZ). Cosan is benefiting from Brazil's economic growth and increasing demand from ethanol worldwide. Moreover, the company has a great medium-term outlook. Additionally, Cosan is well-positioned to keep leading the consolidation of this industry in Brazil.
However, the company posted weak fourth quarter 2008 results. Sugar and ethanol prices have been under pressure in recent months and the short-term outlook remains uncertain due to excess production of sugar, the difficult international economic environment, and the continued strength of the Brazilian currency. Finally, the confusing restructuring plan was not well received by the market.
In April, Cosan entered into a Share Purchase Agreement with ExxonMobil International Holdings B.V., for US$826 million, to purchase all of the share capital of certain affiliates of ExxonMobil (XOM) that own 100% of the outstanding equity interests of Esso Brasileira de Petróleo Ltd., related to marketing and distribution of fuels and production and marketing lubes and specialties, which also includes $163 million in debt and $35 million in related party receivables.
Also recently, Cosan comprised US$61 million as an advance on the purchase of a 71.2% interest in Rumo Logistica, a joint venture with Rezende Barbosa S.A., a Brazilian sugar and ethanol producer, which will consolidate both group's sugar and grain port operations. Apart from the continued acquisitions, Cosan has been investing in organic growth. The first two cogeneration plants are expected to begin its operational tests in the following quarters.
Stratasys Trades at Fair Value
Stratasys, Inc. (SSYS) reported second quarter EPS of $0.19, below our expectations but up about 12% year-over-year due to higher sales increase and higher operating margin. The revenue growth was led by a double-digit increase in the revenue of proprietary high-end systems (33%), proprietary consumables (17%) and maintenance (17%).
We believe the rapid prototyping market will grow in future as engineers and designers seek technology that will increase product development efficiency. SSYS's product offering reduces both product development time and upfront costs. However, in our view, the stock has factored in the bulk of the earnings recovery expected in 2008 trading at 20.1x our 2008 EPS estimate. The stock remains fairly valued at the current price. Our target price is $16.75.
Another factor that presents a favorable long-term opportunity is the 3D printing market. The management stated that there are 5 million 3D CAD software seats used by designers and engineers.