Initiating Coverage on Gerdau: IG Credit with US Exposure, Limited Spread Upside

Gerdau is well-positioned among LatAm peers, with diversified cash flow and a conservative balance sheet, but tight spreads and domestic headwinds limit further upside.

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Key Insights and Recommendations

We are initiating coverage on Gerdau with a Neutral recommendation. While we maintain a constructive view of Gerdau’s credit profile, the outlook for its Brazilian operations remains challenged, and we see limited room for further spread compression at current levels. That said, we find the GGBRBZ 5.750% 2035 and 7.250% 2044 bonds more attractive across the curve, offering yields of 5.8% and 6.3%, respectively, and trading wide to the US BBB curve. For US investors, this presents an attractive yield pickup opportunity within the investment-grade category.