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Morningstar | Cemex Plans Further Deleveraging Via Asset Sales; Shares Undervalued. See Updated Analyst Note from 27 Jul 2018

Cemex’s performance accelerated in the second quarter, with like-for-like revenue growth of 7% and like-for-like operating EBITDA growth of 4%. For the most part, all of Cemex’s regions saw improvement, with the exception of South, Central America, and the Caribbean, which continued to struggle amid declining cement volumes. Our outlook for the company remains largely unchanged, leading us to maintain our fair value estimate of $10 per share for narrow-moat Cemex. With shares currently trading at roughly $7.50 per share, meaningful risk-adjusted upside remains. Shares traded at nearly $10 per share just a year ago and we've seen little change to the company’s outlook since then to warrant lower share prices.

In its second-quarter earnings release, Cemex also announced plans to pursue $1.5 to $2 billion in asset sales by 2020 in order to help achieve a debt reduction of $3.5 billion. We think this plan is achievable, as cement assets have attracted decent acquisition attention in recent years. In addition, we think the company will be able to fund a good amount of debt reduction with internally generated free cash flow. The company believes portfolio optimization will also allow it to begin paying a dividend once again by 2019. We're hesitant to buy into the notion that a dividend can be reinstated as soon as next year unless asset sales begin in short order. Nevertheless, we think the company's optimization plans make sense.