Monday, May 9, 2011

Gafisa SA (NYSE: GFA) Q3 2011 Price Target

Recent price: 11.13$
P/E Ratio: 9.31
3 Months Target Price: 15$

Company Description
Gafisa S.A. is a diversified national homebuilder serving all demographic segments of the Brazilian market. The Company’s brands include Tenda, which serves the affordable entry-level housing segments, Gafisa, which offers a variety of residential options to the mid to higher income segments and Alphaville, which focuses on the identification, development and sale of residential communities. In addition, it provides construction services to third parties. Gafisa’s core business is the development of residential units in attractive locations. During the year ended December 31, 2009, approximately 55% of the value of its launches was derived from high and mid high-level residential developments under the Gafisa brand. It is also engaged in the development of land subdivisions, also known as residential communities under the Alphaville brand, and affordable entry-level housing, which represents approximately 27% of the value of its launches under the Tenda brand.

Confidence Margins
Strong resistance $17.96 (+61%)
Light resistance $14.77 (+33%)
Light support $10.95 (-2%)
Strong support $10.04 (-10%)

Gafisa's stock has been on a strong downtrend over the past weeks and technicals are indicating that it has hit the bottom. Accordingly, now is the right time to take a long position and take advantage of the start of the opposite trend. The profit potential is good enough to warrant the risk of investing in the emerging market stock.

Entry strategy
For the cautious investor:
Buy the stock for 12$ or less.

For the risk-taking trader:
The September 2011 12.50$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 65$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 15$, or keep it until 17$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 15$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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