Gerdau’s Analyst Upgrade Puts Steelmaker in Focus as Tariff Winds Shift

Gerdau S.A. (GGB), one of Latin America's largest steel producers and a pivotal supplier across North and South America, has received a noteworthy analyst upgrade from global investment bank UBS. The ratings action – a move from ‘Neutral’ to ‘Buy’ – arrives at a crucial intersection of sectoral shifts, macroeconomic catalysts, and fresh news cycles, positioning Gerdau as a company to watch for investors seeking undervalued opportunities with tangible upside.

Analyst upgrades, especially from globally influential institutions like UBS, often serve as inflection points for both institutional and retail sentiment. This upgrade signals renewed analyst confidence in Gerdau’s business model, operational leverage, and ability to capitalize on recent tariff hikes, even as the steel industry faces cyclical headwinds and competitive pressures. Understanding the context and conviction behind this upgrade is critical for gauging risk and reward.

Key Takeaways:

• UBS upgrades Gerdau to ‘Buy’, citing improved outlook and sector catalysts.

• Gerdau’s stock has surged nearly 5% today, reflecting immediate market reaction and increased investor interest.

• Recent U.S. steel tariffs provide a structural tailwind, with Gerdau’s North American operations uniquely positioned to benefit.

• Despite strong Q1 revenue, net income lagged for the third straight quarter, highlighting ongoing margin pressures and the importance of efficiency gains.

• Valuation remains attractive: Gerdau trades at a significant discount to global peers on EV/EBITDA, suggesting meaningful potential upside if re-rated.

• EBITDA could rise as much as 12% with a modest 5% increase in steel prices, according to Seeking Alpha.

• Recent debt buyback moves signal proactive balance sheet management, a bullish sign for credit and equity holders alike.

• Technical momentum is building: recent RSI at 68, above-average volume, and a strong bounce from April lows.

Analyst Upgrade: UBS Moves to Buy – What’s Behind the Call?

UBS: A Global Powerhouse with Sector Expertise

UBS, among the world’s most respected investment banks, has a storied track record in both emerging and developed market equities. Their research arm is known for rigorous sectoral analysis and influential calls, particularly in commodities and industrials. The decision to upgrade Gerdau from Neutral to Buy – with a price target to follow – reflects a conviction that goes beyond short-term market noise.

This upgrade comes as Gerdau’s North American exposure (nearly 50% of total EBITDA) positions the company to benefit disproportionately from recently enacted U.S. steel and aluminum tariffs. As Seeking Alpha noted, Gerdau “is uniquely positioned to benefit from new tariffs,” and a re-rating could occur if the market begins to price in these advantages.

"Gerdau has nearly 50% of North America's EBITDA, making it uniquely positioned to benefit from new tariffs on steel and aluminum. The stock trades at 4.79x EV/EBITDA vs. 10.2x the peer average, implying a strong upside if it is revalued." — Seeking Alpha, June 2025 (Source)

Why This UBS Upgrade Matters Now

Given UBS’s clout, their move is likely to prompt re-evaluation by other analysts and larger funds, potentially driving further inflows. The timing is notable – coming on the heels of both macro (tariff) catalysts and micro (balance sheet, valuation) improvements. UBS’s coverage and influence in the metals and mining complex add weight to their conviction, particularly as they have historically anticipated major inflection points in cyclical industries.

Gerdau’s Financial and Operational Snapshot

Business Model and Strategic Footprint

Gerdau is a vertically integrated steelmaker with major operations in Brazil, North America, and several other Latin American markets. The company’s flexible cost structure, geographic diversification, and exposure to infrastructure and construction end-markets have enabled relative stability through commodity cycles. However, recent years have brought margin compression due to Chinese import competition and high capital expenditure requirements, especially in Brazil.

Recent Financial Performance

• Q1 2025 Revenue: Exceeded consensus estimates, reflecting resilient demand and successful price pass-throughs in some markets.

• Net Income: Disappointed for the third straight quarter, as noted by Seeking Alpha, due to ongoing cost pressures and increased competition.

• EBITDA Margin: Resilient at 13.8%, but with little room for error given cost inflation and CapEx intensity.

• Valuation: Trades at 4.79x EV/EBITDA (as per recent analysis), materially below the 10.2x global peer average. This valuation gap is central to the bullish thesis.

• Balance Sheet Moves: The recent announcement of a cash tender offer to repurchase outstanding 4.875% notes due 2027 highlights proactive debt management, potentially reducing interest burden and signaling management’s confidence in cash flow generation.

Technical and Sentiment Signals

• Current Price: $3.12 (up nearly 5% today)

• VWAP (Year to Date): $3.05, suggesting current price is breaking above recent averages.

• RSI: Approaching 68, indicating building momentum but not yet overbought.

• Volume: Today’s volume (4.7 million) is above the average daily volume for the past year (9.6 million), indicating heightened interest on the upgrade news.

• 52-Week Range: $2.27 (April 2025 low) to $3.62 (November 2024 high)

Tariffs, Triggers, and the Macro Backdrop

Tariff Tailwinds and Sector Dynamics

The U.S. government’s move to increase tariffs on imported steel and aluminum is a classic sector catalyst, especially for companies like Gerdau with significant U.S. operations. According to recent research, a 5% increase in steel prices – plausible given the new tariffs – could boost Gerdau’s 2025 EBITDA by 12%, reflecting the company’s high operating leverage.

This environment could also prompt a relative re-rating of Gerdau’s shares, as investors look for laggards with improving fundamentals and clear macro tailwinds. The company’s peer group trades at more than double Gerdau’s current EV/EBITDA, pointing to a substantial potential upside if sentiment turns.

Recent Newsflow: Balance Sheet and Earnings

• Debt Buyback: On June 3, 2025, Gerdau announced a tender offer to repurchase its 4.875% notes due 2027. This move, while not large in absolute terms, signals management’s focus on lowering leverage and supporting creditworthiness.

• Q1 Earnings: While revenue was robust, net income lagged – reflecting both the resilience and the risks in Gerdau’s business model. Investors should note that operational execution and cost control remain critical, especially given rising CapEx and slightly higher leverage metrics.

Valuation Gap: How Much Upside Remains?

Gerdau’s shares currently trade at $3.12, up 4.9% on the day and a clear sign of market enthusiasm following the UBS upgrade. While UBS’s specific price target is pending, recent peer analysis and the company’s own historical valuation multiples suggest meaningful upside if the market re-rates the stock toward the sector median. At 4.79x EV/EBITDA versus a peer average of 10.2x, even a partial closing of this gap could drive double-digit returns from here.

Technical Considerations and Risk Factors

• Momentum is Building: The RSI of nearly 68 and a strong price move off the April lows signal growing technical strength. However, the stock remains below its November 2024 high, suggesting room to run if sentiment improves.

• Risks: Chinese steel competition, Brazil macro volatility, and the cyclical nature of steel pricing remain real headwinds. Investors should also watch for execution risk, especially around cost control and CapEx discipline.

Expert and Market Commentary

“With Gerdau’s North American footprint and current valuation gap, the stock is positioned to benefit from both macro and micro tailwinds. Tariffs are an obvious catalyst, but balance sheet discipline and operational leverage could surprise to the upside.”

— Senior Metals Analyst, Sell-side Research (June 2025)

Conclusion: A Strategic Inflection Point for Gerdau

The UBS upgrade to Buy shines a spotlight on Gerdau at a time when both industry and company-specific catalysts are aligning. Investors should weigh the attractive valuation, tariff-driven upside potential, and proactive balance sheet moves against the persistent risks of margin pressure and industry cyclicality. For those seeking exposure to the next phase of the steel cycle, Gerdau’s risk/reward profile appears increasingly compelling.

Appendix: Data Tables and References