We are keeping our Sell rating on CEMEX, S.A. de C.V. (CX). The first quarter results were weak. The continued weak cement volumes/revenues in the key U.S. and Mexican markets are problematic.

We consider the guidance for the second quarter 2008 to be weak. The short-term outlook for the company remains highly uncertain based on the downtrend in the residential and the infrastructure sector as well as due to the real estate prices in Spain. We believe that the recent take-over of the Venezuela subsidiary by the government is also troublesome.

CEMEX announced that US$400 million synergies in the Rinker integration should improve results in the short-to-medium term. The company announced the sale of 9.5% of the equity capital of Axtel, which represented a non-recurring profit of US$180 million in the first quarter. In another deal with Ready Nix USA, CEMEX will contribute assets worth US$260 million and sell assets of US$120 million to a joint venture.

The second quarter revenues are expected to reach US$6.4 billion, operating income would reach US$960 million and EBITDA would be close to US$1.4 billion. However, if we analyze the same indicators in a pro-forma basis, adjusting for the consolidation of Rinker, the situation changes dramatically. The residential sector downturn in the U.S. remains a huge concern, a trend that seems to be not over yet.

CEMEX is currently trading at 8.1x our 2008 earnings estimate. In our opinion, the stock's valuation deserves a discount, due to the still above-average leverage, considerable exposure to some volatile Latin American economies, higher inflation and interest rates in Mexico and its huge exposure to the U.S. and Spanish markets. We are reducing our target price from US$23.50 to US$20.25 based on the EV/2008 EBITDA multiple of 5.7x.