Gerdau Profits More in the U.S. Than in Brazil: The Valuation Gap

The same tonnage, an abyss of profitability

There is a simple exercise to understand Gerdau's current thesis. In the first quarter, the North American operation sold 1.28 million tons of steel and generated an EBITDA of R$ 2.25 billion. In Brazil, it was 1.32 million tons for an EBITDA of R$ 578 million.

The math is straightforward: with practically the same volume, the operation in the United States yielded almost four times more. This data alone has changed the way a large part of the market views the Brazilian company.

For institutional investors, Gerdau has ceased to be a Brazilian steelmaker with an international presence. In practice, the cash generation engine is in the American market, protected by tariffs of 50% on steel imports and fueled by a wave of infrastructure investments that show no signs of cooling down.

The central question, however, is that the market has yet to price this transformation. The stock trades at around 4x EV/EBITDA, the floor of the historical range between 4x and 6x. Comparable American steelmakers operate close to 7.5x. This discount explains why Gerdau has become one of the most debated theses among Brazilian stocks for some managers.

American margins may sustain above 20%

The most relevant debate among analysts revolves around the sustainability of margins in North America. In the first quarter, the EBITDA margin of the American operation stood at 24.1%, compared to 9.2% in Brazil. Some sell-side analysts already project that this margin could reach a record range of 27%.

Historically, the market operated under the premise that profitability would return to pre-pandemic levels, around 17% to 18%. This view is being revised. Managers closely following the company are already working with base scenarios of margins close to 22%, considering the new balance between supply and demand in the American market.

Three factors support this reading. First, the 50% tariffs from Section 232, which were maintained even after recent tariff revisions by the Trump administration against Canadian products. Steel products already subject to the surcharge were excluded from the new measures, preserving the level of trade protection.

Second, demand remains strong due to structural drivers. Expansion of electrical grids, construction of data centers to meet the demand for artificial intelligence, and infrastructure investments driven by the American technological race create a steel consumption base that does not depend on conventional economic cycles.

Third, supply remains constrained. Global trade uncertainty has led the American industry to prefer local suppliers, ensuring timeliness and cost predictability. This allows producers like Gerdau to adjust prices even without widespread economic acceleration.

Backlog above 100 days confirms firm demand

The numbers from the order book reinforce the thesis. In the first quarter, Gerdau's backlog in North America exceeded 90 days, above the average of 70 days observed in previous quarters. Market estimates indicate that this indicator has already surpassed 100 days, potentially reaching 110 days by the end of the second quarter.

CEO Gustavo Werneck reinforced the message in the last earnings teleconference: "The number of data centers being and to be built in the coming years in North America supports a very significant demand for steel." Werneck indicated that the results from the first quarter are expected to repeat in the upcoming periods.

Bank projections corroborate this view. For the second quarter, estimates point to EBITDA of R$ 2.42 billion in North America, with a margin close to 25%. For the full year, the projection is for EBITDA around R$ 9.65 billion in the region, with a margin of 24.8%.

The most commonly used analogy in the market to describe the moment is the gold rush: those who became wealthy were not the miners, but those who sold the shovels. In this race for digital infrastructure, the "shovels" are transformers, copper, chips, and steel. Gerdau, as one of the largest long steel producers in North America, is positioned exactly at this point in the chain.

The argument against the total repricing of Gerdau is clear: the company still has significant exposure to Brazil, where margins are compressed and competition with Chinese steel pressures prices and volumes. The Brazilian EBITDA margin of 9.2% in the first quarter illustrates the contrast.

The Brazilian government has adopted anti-dumping measures for products such as pre-painted steel, cold-rolled steel, and galvanized steel, but the protection does not yet cover the entire portfolio. The decision on hot-rolled steel, which represents between 20% and 25% of Gerdau's Brazilian portfolio, is one of the expected catalysts in the market.

Even so, the valuation math is hard to ignore. The stock has risen 41% in the last 12 months and still trades at less than 4x the estimated EBITDA for the year, offering a free cash flow yield close to 10%. In more optimistic scenarios, with the American margin stabilizing around 27%, consolidated EBITDA could reach R$ 15 billion, with a free cash flow yield near 12%.

Even in a pessimistic scenario, with the American margin retreating to 17.7%, EBITDA would be R$ 10.3 billion and the free cash flow yield at 6.7%, numbers that still support the thesis that the stock is cheap for the company’s cash generation profile.

What Matters to the Investor

Gerdau has effectively become a way to access the American investment cycle from the Brazilian stock market. Those buying GGBR4 today are purchasing exposure to data centers, electrical infrastructure, and American reindustrialization at a discount compared to competitors listed in New York.

The risk is that tariffs change, American demand slows down, or the Brazilian operation deteriorates further. But as long as these factors do not materialize, the valuation gap between 4x and 7.5x remains the number that defines the debate about the company.

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