Cosan S.A. (CSAN) Gets Negative Outlook from Fitch as Leverage Remains High

Cosan S.A. (NYSE:CSAN) is among the best fundamentally strong penny stocks to buy according to analysts. On December 16, Fitch Ratings maintained Cosan S.A. (NYSE:CSAN)’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at ’BB,’ and updated the outlook to negative from stable. According to the statement, the rating agency reaffirmed the unsecured debentures at ’AAA(bra)’ and National Scale Rating at ’AAA(bra).

The agency cites several reasons for this weak guidance, including the company’s high leverage and sustained dependence on asset sales. Fitch Ratings notes that the earlier BRL10.5 billion follow-on completion offers “relief to Cosan as it advances its divestment strategy, aiming to deleverage the company over the next three years.”

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On the positive side, the company’s cash flow is expected to turn modestly positive in the years ahead, thanks to declining debt levels and lower interest rates. The agency projects an annual average dividend of BRL 2.3 billion to Cosan S.A. (NYSE:CSAN), primarily from the subsidiaries of Compass and Rumo.

Earlier on December 5, HSBC upgraded Cosan S.A. (NYSE:CSAN) to Hold from Reduce and kept a price target of $5. The firm cited the company’s recent equity offering, which has led to favorable advancements to the company’s C-level executives and Board structure, thus supporting increased governance scrutiny from new partners.

Cosan S.A. (NYSE:CSAN) is a Brazilian company specializing in the fuel distribution business. Founded in 1936, the company operates through five segments: Raízen, Compass, Moove, Rumo, and Radar.

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Disclosure: None.