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Gerdau S.A. (GGB) Deep Research Report: Asymmetric Upside or Value Trap in a Two-Speed Steel Cycle?

DeepValue Research Team|
GGB

Gerdau S.A. (NYSE: GGB) is one of those “two-speed” stories the market loves to oversimplify. On one side, you have a resilient North American electric-arc-furnace steel franchise tied to U.S. infrastructure, data centers, and recycling. On the other, you have Brazil, where import-heavy competition and policy uncertainty keep domestic spreads under constant pressure.

At roughly $4.07 per ADR when our work was done, GGB sits in that uncomfortable middle ground: screens cheap on traditional valuation metrics, but with enough moving pieces that many investors understandably stay on the sidelines. Our task as value investors is to separate what’s structurally broken from what’s just cyclically out of favor.

According to the company’s latest 4Q25 results release (Feb 23 2026), North America already accounts for about 62% of 2025 EBITDA, and management has laid out a clear roadmap for 2026: cut capex, start up the Miguel Burnier mining platform, and keep leaning into buybacks and dividends as long as the balance sheet can support it. That’s the bullish framing. The bear framing is that Brazil’s import problem proves far stickier than hoped, and free cash flow turns out to be more optical than recurring.

For investors willing to underwrite those moving parts, we think Gerdau today offers an asymmetric risk/reward rather than a simple “cheap cyclical” trade. Our base case fair value is around $4.80 per ADR, with a bull case of $6.00 and a bear case closer to $3.00, and a “Potential Buy” rating with moderate conviction (3.5/5).

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Let’s break down where we think the market is right, where it’s off, and what must go right for GGB to work from here.

Gerdau at a Glance: A Two-Speed Steel Platform

Gerdau is a Brazil-incorporated steel producer focused on long steel and special steel products, with operations across Brazil, North America, and the rest of South America. Its products ship into construction, infrastructure, industrial, automotive, and oil & gas end markets, among others, as described in the company’s 20-F (2025).

A few structural points from the filings and recent disclosures:

  • North America is now the earnings engine. Management frames North America as 62% of consolidated EBITDA in 2025, resetting how we should think about GGB’s geographic risk mix PR Newswire (4Q25 release), Feb 23 2026.
  • Balance sheet is conservative, not distressed. Net debt/EBITDA stands at roughly 0.76x at 4Q25, according to the 4Q25 presentation and results commentary (Feb 24 2026). That gives real room to absorb cycles and still pay shareholders.
  • Capital returns are front and center. In 2025, Gerdau returned R$2.4 billion through dividends and buybacks and authorized a new buyback program of up to 56.4 million shares over 18 months PR Newswire (4Q25 release), Feb 23 2026.

From our perspective, the story today is less about “Will Gerdau survive?” and more about “Are we getting paid enough to live with Brazil and to trust the quality of cash flow?”

Valuation, Margin of Safety, and Capital Structure

On headline numbers, GGB looks like classic deep value in a cyclical sector.

Per FMP data, the stock trades at:

  • EV/EBITDA ~5.6x
  • Price-to-book ~0.78x
  • P/E ~30x (high, but distorted by cycle and one-offs)
  • Net debt ~R$7.15 billion and net debt/EBITDA ~0.76x
  • Interest coverage ~2.85x [FMP Financials block]

That mix tells us a few important things.

Asset-backed, but not yet earnings-backed

At under 0.8x book, the equity is effectively being priced more like a set of assets trudging through a rough cycle than a stable earnings franchise. That makes sense for a steel producer with major Brazil exposure.

But we’re not yet at the point where we can say, “The earnings floor is solid, so the margin of safety is locked in.” The key offsets:

  • Interest coverage at 2.85x is fine, not stellar.
  • The 20-F (2025) explicitly warns that increased exports/imports and lower steel prices can materially harm results, including inventory write-downs.
  • Crucially, the same 20-F discloses a one-time R$1.77 billion cash inflow from withdrawal of judicial deposits and a R$256.1 million CADE settlement payment, plus sizable remaining civil and labor claim exposures.

This is the classic value trap vs value opportunity fork: if you treat one-off judicial deposit movements as recurring free cash flow, you can easily overestimate the true earnings power.

Our takeaway: the margin of safety is primarily balance-sheet and asset-based today, not yet grounded in stable earnings. That argues for position sizing discipline rather than “back up the truck” behavior.

When does capital impairment become a real risk?

We think the “danger zone” is pretty clearly defined in the downside boundaries from our research:

  • Brazil imports stay structurally high into late 2026. Aço Brasil expects 2026 steel imports of ~6.6 Mt (+10% YoY) and utilization around 66%, explicitly excluding expected anti-dumping measures from H1 2026 Argus, Dec 16 2025.
  • North American demand/backlog breaks at the same time. Gerdau’s NA order backlog sat at about 70 days in 3Q25, above the historical ~60-day level, signaling solid demand and falling imports Steel Market Update, Oct 31 2025.

If we get to mid-2026 and see Brazil’s imports still tracking that Aço Brasil baseline, while NA backlog shrinks below historic norms and free cash flow turns negative, then the downside is no longer just optical. That’s where permanent capital impairment risk rises sharply.

What’s the Core Investment Thesis in GGB?

We frame GGB today as an asymmetric setup built on three pillars:

1. North America remains the earnings engine.

2. Capex steps down in 2026, lifting free cash flow.

3. Miguel Burnier and trade-defense actions create Brazil optionality.

At $4.07, our scenario analysis is:

  • Base case (50% probability): $4.80 implied value

North America demand holds up, capex falls as planned, and free cash flow improves.

  • Bull case (25%): $6.00 implied value

Miguel Burnier ramps smoothly in H2 2026, Brazil cash costs fall, and consolidated EBITDA lifts.

  • Bear case (25%): $3.00 implied value

Brazil imports remain high, trade-defense actions underwhelm, and consolidated FCF hovers near breakeven.

In plain language: the market is already penalizing Brazil aggressively; you’re mostly paying for the North American business plus some option value on a Brazil fix.

Is GGB Stock a Buy in 2026?

We rate GGB a “Potential Buy” with 3.5/5 conviction, but only for investors willing to monitor a handful of very specific datapoints over the next 6–12 months.

The bull side: why this could work

Several elements give us comfort on the upside:

If those catalysts line up — capex down, NA backlog steady, Miguel Burnier ramping — we think the market will be forced to re-rate GGB more on sustainable free cash flow rather than purely on Brazil headlines.

The bear side: what can go wrong from here

We also see a credible bear case if:

  • Brazil trade-defense measures underdeliver. Aço Brasil’s baseline assumes imports grow another 10% in 2026 and explicitly excludes any anti-dumping duties Argus, Dec 16 2025. If H2 2026 data still tracks that path, the “Brazil stabilization” leg is broken.
  • Import leak paths remain wide open. Even as quotas tighten, rebar imports through channels like Mercosur–Egypt 0% tariff flows could keep Brazil longs pricing under pressure S&P Global, Dec 19 2025.
  • North America falters at the wrong time. If NA backlog falls back toward or below the historical 60-day level and broader U.S. nonresidential weakens beyond AIA’s modest growth forecast, Gerdau loses its primary buffer Steel Market Update, Oct 31 2025 AIA, Jan 20 2026.
  • Cash returns keep leaning on one-offs. If management continues sizable dividends and buybacks funded partly by judicial deposit withdrawals rather than recurring operating cash, the equity story skews toward “financial engineering,” not durable FCF 20-F (2025).

Our view: GGB is investable today, but only if you’re willing to anchor on specific 2026 checkpoints, not vague optimism about a Brazil recovery.

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Will Gerdau Deliver Long-Term Growth or Just a Cyclical Pop?

Over a 2–5 year horizon, we think Gerdau’s outcome will hinge on three structural questions.

1. Can Brazil’s profitability really normalize?

Long-term, Brazil doesn’t need perfect conditions — it needs import penetration to become manageable instead of structurally distortive.

Industry commentary paints a challenging picture:

  • Aço Brasil sees imports at ~6.6 Mt in 2026, with plant utilization stuck near 66% Argus, Dec 16 2025.
  • Rebar flows via Mercosur–Egypt 0% tariffs and other channels keep undercutting domestic longs pricing S&P Global, Dec 19 2025.

Brazil has moved to tighten quotas, with a 25% over-quota tariff across several products Argus, Jun 30 2025. The question is whether those measures actually reduce realized import volumes and restore spreads, or whether imports simply reroute through “leak paths.”

If, by late 2026, we still see imports elevated and utilization stuck, our conviction in a structural Brazil margin recovery drops sharply.

2. Does North America stay the stabilizer?

In North America, Gerdau competes against EAF-heavy peers like Nucor, Steel Dynamics, and Commercial Metals Company, with a focus on long steel and recycling. The key swing factors:

  • Backlog and import trends — management attributed Q3’25 strength in NA in part to falling imports and a backlog of about 70 days Steel Market Update, Oct 31 2025.
  • End-market mix — exposure to data centers, renewables, and infrastructure is a tailwind relative to weaker automotive and some commercial segments Recycling Today, Feb 24 2026.
  • Macro backdrop — AIA expects only about +1% building spending growth in 2026 and prolonged weakness in several nonresidential categories, with data centers as a standout AIA, Jan 20 2026.

Our long-term thesis doesn’t require NA to grow aggressively; it requires NA to remain the EBITDA anchor across the next construction cycle. If that holds, Gerdau can absorb a slower, messier Brazil normalization.

3. Can management keep balancing reinvestment and capital returns?

From a stewardship angle, we see a management team that has:

The governance toolkit — code of ethics, equity incentive plans, clawback policy — is all present in the 20-F governance exhibits. The real test now is disclosure quality: investors need clarity on what portion of cash generation is recurring versus one-off.

If, by mid‑2026, management is clearly separating recurring operating cash flow from judicial deposit movements while still funding distributions, that’s a strong signal. If not, we’d treat high payout ratios with more skepticism.

Key Catalysts and Monitoring Checklist (0–18 Months)

We see GGB as a “catalyst-rich” name over the next year and a half. To keep the thesis on track, we’re watching three time windows.

0–6 months: Proving the near-term plan

By roughly May 2026, we want to see:

  • Capex tracking the R$4.7 billion 2026 plan. Quarterly capex should annualize to something close to that target; any re-acceleration toward 2025’s R$6.1 billion undermines the FCF story PR Newswire (4Q25 release), Feb 23 2026.
  • Clear disclosure on funding of buybacks/dividends. Management should spell out whether distributions are covered by recurring operating cash versus residual one-off judicial deposit withdrawals 20-F (2025).
  • Miguel Burnier “go/no-go” confirmation. We expect explicit confirmation that the platform begins operating in H1 2026, with at least directional commentary on cost savings MarketScreener/Publicnow (4Q25 presentation), Feb 24 2026.

6–18 months: Separating structural from cyclical

Through late 2026, three things matter most:

1. Brazil imports vs Aço Brasil baseline.

If imports inflect downward versus the 6.6 Mt, +10% YoY baseline that excludes anti-dumping duties, trade-defense actions are working; if not, the Brazil rebound thesis needs to be dialed back Argus, Dec 16 2025.

2. Miguel Burnier’s realized economics.

Management has floated potential annual EBITDA gains of around R$1.1 billion from the project Gerdau company news, Jul 31 2025. By 2026 reporting, we should see early evidence that self-supplied iron ore is actually lowering Brazil unit costs and lifting EBITDA.

3. North America backlog resilience.

We’re looking for backlog days to stay at or above the historical ~60-day level, ideally closer to the 70 days cited in Q3’25, confirming that NA remains the profit engine Steel Market Update, Oct 31 2025.

Early warning indicators

If you own or are considering GGB, a few practical monitoring points:

  • Brazil import data (MDIC) — if monthly imports do not decline sequentially after quota tightening, it suggests enforcement isn’t biting Argus, Jun 30 2025.
  • Evidence of rising imports via special routes like Mercosur–Egypt in rebar, which would mean the market is finding ways around headline quotas S&P Global, Dec 19 2025.
  • North America order book — management commentary and industry sources on backlog and pricing trends are your best real-time barometers for the NA engine.

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How We’d Position GGB in a Portfolio

Putting this all together:

  • Our rating: Potential Buy
  • Conviction: 3.5/5
  • Attractive entry: Around $3.80 or better
  • Trim zone: Above roughly $5.80, where upside vs risk narrows

We think GGB makes sense as:

  • A small-to-moderate position in a diversified portfolio for investors comfortable with commodity cyclicality and policy risk.
  • A tactical holding around discrete, dated catalysts (capex reset, Miguel Burnier start-up, H1 2026 trade-defense outcomes).
  • A relative value play versus more expensive U.S. peers, if you accept the additional Brazil risk in exchange for cheaper valuation and upside optionality.

We would not treat GGB as a “set it and forget it” compounder. The 20-F makes clear that the steel industry is highly cyclical and sensitive to world prices and trade flows 20-F (2025). This is a research-intensive, monitoring-heavy idea where process discipline matters as much as initial entry price.

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Final Thoughts: Asymmetric Setup, but Execution Matters

Our bottom line on GGB:

  • Valuation is supportive: EV/EBITDA ~5.6x and P/B ~0.78x with modest leverage look reasonable for a name where North America supplies 62% of EBITDA.
  • Near-term catalysts are real: a concrete 2026 capex step-down, a late-stage mining project poised to cut Brazil costs, and a highly visible trade-defense timeline in H1 2026.
  • Risks are not abstract: Brazil imports may not normalize as quickly as consensus implies, NA demand can weaken, and cash returns might lean too heavily on non-recurring sources.

We think the market’s dominant “two-speed” narrative — strong North America, structurally challenged Brazil — is broadly right but underprices the path-dependent nature of the next 12–18 months. If even two of the three core levers (capex discipline, Miguel Burnier ramp, Brazil import relief) move in the right direction, today’s price likely understates Gerdau’s normalized cash generation.

For investors who are prepared to monitor those levers closely and size exposure accordingly, GGB offers a legitimate asymmetric opportunity rather than a simple value trap. For those who prefer cleaner, less policy-exposed stories, the Brazil leg may simply be too noisy to underwrite.

As always, none of this is personalized advice — but we hope this gives you a clear, structured framework for deciding whether Gerdau deserves a spot on your watchlist or in your portfolio.

Sources

Frequently Asked Questions

Is GGB stock undervalued at current prices?

At around $4 per ADR, GGB trades at about 5.6x EV/EBITDA and roughly 0.78x book value, which suggests the stock is not expensive on asset and cash flow metrics. The balance sheet is relatively conservative at 0.76x net debt/EBITDA, giving it some cushion if the steel cycle weakens. That said, earnings quality is still in question because part of recent cash generation came from one-off judicial deposit withdrawals rather than recurring operations.

What are the key catalysts for GGB over the next 6–12 months?

The main near-term drivers are the planned capex reduction in 2026, the start-up and ramp of the Miguel Burnier mining project, and how Brazil’s steel import volumes respond to trade-defense actions. If capex does step down to R$4.7 billion, Miguel Burnier begins operating in H1 2026, and Brazil imports ease, recurring free cash flow could rise meaningfully. Conversely, if these fail to materialize, the bullish case on margin recovery and cash generation weakens.

What could break the bullish thesis on GGB?

The thesis breaks if North American demand rolls over while Brazil’s import pressure remains high, leaving both major profit centers under strain. Specifically, if Brazil’s imports still track Aço Brasil’s ~6.6 Mt 2026 baseline and North America backlog falls below historical levels, the earnings “buffer” disappears. Persistent reliance on non-recurring cash inflows to fund dividends and buybacks would also undermine confidence in the sustainability of shareholder returns.

Disclaimer: This report is for informational purposes only and is not investment advice. Analysis is powered by our proprietary AI system processing SEC filings and industry data. Investing involves risk, including loss of principal. Always consult a licensed financial advisor and perform your own due diligence.