Today’s Daily Alert features a unique speculation on the ethanol market from Income Builder.
“Cosan Ltd. (CZZ) is a global leader in the production of sugar and ethanol. Based in Brazil, the company is the world’s largest grower and processor of sugarcane and the second-largest ethanol producer. The company’s ethanol operations are conducted through a joint venture with Shell, the oil giant. Sugar prices are just off 52-week lows, due in part to a bumper crop worldwide. Yet, with the price of U.S. corn so high, Cosan’s ethanol should be priced competitively against U.S. ethanol, which is made from corn. Tariffs currently protect U.S. ethanol producers, but with a limited corn crop and the potential for rising oil prices, those tariffs could very well be reduced, paving the way for Cosan to expand its exports to the U.S.
“Even without this extra business, Cosan’s ADRs are reasonably priced at 18 times projected 2012 earnings of $0.83 and only 12 times projected 2013 earnings of $1.31. The company pays a modest dividend of $0.29 per share, which translates into a yield of 1.9%. CZZ’s shares have been on a steady uptrend lately, but have generally performed in line with the broader market. The company operates with a fair amount of leverage, with roughly $635 million in cash, $3.6 billion of debt and $2.3 billion of equity and has been consuming more cash than it generates as it grows. We see this as a hedge against rising energy costs and are adding a small position of 400 shares to the portfolio at this time.”
- Stephen P. Percoco, Income Builder, September 16, 2012