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An Improving Steel Market Makes ArcelorMittal a Stock to Consider

August 17, 2014 | About:
rusticnomad

rusticnomad

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ArcelorMittal (MT) released better-than-expected first quarter results. The key reason behind the company’s good performance was the closure of mills in Europe. However, the company has been struggling for two years, which is evident from the falling stock price and its inability to post solid financials. But, now it seems that ArcelorMittal is improving.

The company might be a good performer in the future on the back of its strategic moves. However, there are some other important points on the back of which ArcelorMittal might see some trouble.

Analyzing the results

In the recently reported quarter, ArcelorMittal reported a good 9% improvement in year-over-year EBITDA. This was a result of the improving U.S. and European economies and the growing demand for steel. ArcelorMittal posted a profit of $52 million, which is better than a $780 million loss in the same quarter a year ago. However, the steel company expects iron ore prices to remain low in the coming months. This is bad news for the company, and it will be tough for it to maintain a good profit margin.

The road forward

The way ArcelorMittal is moving, it is clear that the company is optimistic about its good performance in the future. There are many key points on which it is focusing. The steel company is seeing an improvement in steel demand. On the other hand, the growing U.S. and European economies are giving positive signs.

Besides, in the U.S., the automotive and construction businesses are gaining steam. With the improvement in the automotive market, the demand for steel is expected to grow because auto manufacturing is expected to ramp up in the coming days. ArcelorMittal is preparing itself to capture this opportunity by making continuous efforts to strengthen its business through various profitable initiatives such as cost optimization and maximizing the potential of the mining assets.

Moving on, the steel company did see some weakness in Brazil. The company’s margins declined there on a year-over-year basis. This happened due to the macro-economic challenges existing there. The high-interest rates also put the automotive segment under pressure there. As a result, the demand for the steel also declined in the nation.

However, ArcelorMittal is seeing positive signs from Europe. The economy is improving, which will give the steel company better opportunities to excel in the future. The demand for new automotive is expected to increase, leading to growth in its top line in the future.

Moving on to the mining segment, the company is gaining good traction. ArcelorMittal achieved the highest-ever quarterly iron ore production of 16.6 million tonnes last quarter, out of which it shipped around 10.5 million tonnes at the market price, which yielded handsome revenue and was one of the key reasons for ArcelorMittal’s robust performance.

However, the company is anticipating relatively lower prices for iron ore in the future. This has scared investors away from the stock. Even the good results in the last reported quarter couldn’t support it and the stock fell. The company is expecting a decline in its profit margin, as it is expected that iron ore price will decline to $105 per ton, which is quite less than $135 per ton from last year.

Conclusion

Looking at the fundamentals, ArcelorMittal shows good signs of improvement in earnings. This is evident by an impressive forward P/E of 11.53. However, the most-impressive fact about the stock is its future five-year growth rate, which is expected to grow at a robust pace of 67.40%. So, from an investment point of view, investors should consider ArcelorMittal as it looks like a good bet for the long run.


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