UBS Raises CVRD Equity to Buy

UBS has upgraded CVRD stock to buy from neutral after the equity market correction. “The stock is 17% below its recent high price of $37.75/share (RIO), and we believe M&A activity potential has improved our iron ore price long-term view, which is positive for CVRD,” says the shop. “Also, while some of the concerns we had about CVRD in early October remain, we believe the recent price correction has discounted a higher risk outlook in the short-term,” it adds. UBS also raised its earnings estimates for 2009 by 13% on iron ore. However, it warns that short-term dynamics may be negative due to potentially lower than expected 2008 iron ore price increases. It prefers CVRD to Bradespar, which it rates neutral. “Bradespar remains a way to gain CVRD exposure, although we do not see relative outperformance between CVRD ONs and Bradespar,” says UBS. “We reinforce our view that Bradespar is unlikely to see CVRD-related M&A activity in the next 12 months, and hence should not trade at a premium,” it adds.