Loma Negra Is The Best Argentinian Infrastructure Recovery Play, Morgan Stanley Says In Upgrade

Argentinian cement manufacturer Loma Negra Compania Indl Argentina SA LOMA, which debuted on Wall Street late last year, earned a bullish call from Morgan Stanley. The company is scheduled to report first-quarter results after the close Tuesday. 

The Analyst

Analyst Nikolaj Lippmann upgraded Loma Negra from Equal-weight to Overweight with a $26 price target.

The Thesis

Despite recent jitters, the Argentinian infrastructure and cement recovery is on track and Loma Negra is the best play on the story, Lippmann said in a Tuesday note.

"Loma is the cement market leader in Argentina, and thus a high-quality play on Argentine financial normalization translating into the real economy," the analyst said.

The company is a cost leader and owns about 80 percent of "one of the most strategic" Argentinian rail concessions, Lippmann said. 

Morgan Stanley expects the per capita consumption of cement in Argentina to rise by a mid-single digit percentage over the next decade, with a low level of U.S. dollar debt to domestic debt and relatively low sovereign, corporate and household debt providing a cushion.

The double-digit growth in cement demand in Argentina will drive Loma Negra's EBITDA from $27/ton to $45/ton by 2021, Lippmann said. The gain is likely to be driven by pricing in 2018-20 and by costs beyond that, he said. 

Morgan Stanley sees the company's shares as offering attractive risk/reward following the recent pullback.

The Price Action

Loma Negra shares have shed about 16 percent since their Wall Street debut Nov. 1, 2017. The stock was down 2.75 percent at the time of publication Tuesday morning. 

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