Underperform on ArcelorMittal - Analyst Blog
10 Dicembre 2012 - 3:30PM
Zacks
We are retaining our Underperform
recommendation on ArcelorMittal (MT) following its
dismal third-quarter 2012 results. The company swung to a loss in
the quarter, hurt by weak economic conditions and lower steel
pricing.
Adjusted loss per share of 31
cents a share missed the Zacks Consensus Estimate of earnings of 6
cents per share. Revenues slipped nearly 19% year over year to
$19,723 million, trailing the Zacks Consensus Estimate of $21,189
million.
The company, in its third quarter
call, announced its plans to slash its annual dividend to 20 cents
per share in 2013 from 75 cents per share in 2012. The move
is expected to offer roughly $850 million in savings next
year.
ArcelorMittal remains affected by
the challenging economic conditions in Europe. It is also exposed
to volatility in steel pricing and tough competition and has
significant debt, which is almost equal to its market
capitalization.
Increased domestic imports,
production ramp ups by peers and increased Chinese production have
led to oversupply in the industry, which in turn, is causing a
decline in steel prices. The effect of price declines was witnessed
across all segments in the third quarter and led to a contraction
in the top line.
Moreover, the world economy is
struggling and the recessionary conditions persist in Europe. The
concerns surrounding the looming U.S. fiscal cliff is also
contributing to weak demand and lower steel pricing. Weak
construction activity in the U.S. and Europe remains another
concern. Weakness in key end markets may hinder the company’s
earnings power moving ahead.
In addition, ArcelorMittal is
saddled with high debt. Although the company is diligently working
toward reducing the amount of debt on its books through
divestments, a debt of roughly $23.2 billion against a market
capitalization of around $24.3 billion is concerning.
ArcelorMittal, which competes
with U.S. Steel Corp. (X) and Tata Steel Limited,
retains a Zacks #5 Rank, indicating a short-term Strong Sell
rating.
ARCELOR MITTAL (MT): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis Report
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