ArcelorMittal (MT, Financial), a multinational steel producer, is trading at such low prices that it is worth taking a look at.
Following a nearly 10% drop in the share price since early August, the stock in the Luxemburg-based multinational steel manufacturing corporation is now trading below the 200-, 100 and 50-day simple moving average lines. That is illustrated in the below chart powered by GuruFocus. The chart also depicts an 8% climb in the market value of ArcelorMittal to $29.40 per share for the 52 weeks through Friday.
The stock is up 2.4% to $30 per share in early trading on Monday Sept. 17. The market capitalization is $30.2 billion on the New York Stock Exchange.
The stock is also 27% from the 52-week high of $37.5 and about 20% off the 52-week low of $24.74.
A price-earnings ratio of 5.69 versus an industry median of 11.68 and a price-book ratio of 0.73 versus an industry median of 0.99 are further indications of a cheap stock.
And, according to the GuruFocus chart below, its current share price is below the Peter Lynch earnings line (P/E = 15), which indicates an inexpensive stock.
The attractiveness of ArcelorMittal is not for its forward dividend yield. At 0.34%, it is far below the current dividend yield of 1.76% on the S&P 500 index. Rather, it lies in the stock appreciation that analysts are predicting on a one-year horizon. The average target price – a mean of six estimates – is nearly $44 per share. That is 50% growth from Monday's price.
The consensus prediction is unlikely to be 100% correct; however, just 5% of the expected growth in the share price of ArcelorMittal would be enough to lead the total yield up to 5-6%. That overall rate of return will certainly beat what the U.S. government is guaranteeing to the holders of the one-year U.S. Treasury bond. The U.S. government-backed fixed income securities are granting a 2.49% yield on a one-year horizon.
ArcelorMittal is also expected to benefit from the persistence of favorable conditions in several markets in which it is a leader.
ArcelorMittal is a leading provider of quality steel products and a major producer of iron ore. The steel products of the company are sold in all major markets around the world. A wide variety of ArcelorMittal’s steel products are used in construction, automotive, transport, packaging, energy industries and the fabrication of domestic appliances. ArcelorMittal also generates its revenue from the sale of by-products.Â
The company produces finished, semi-finished, long and flat products. These goods are slabs, hot and cold-rolled coils, coated steel products, tin and heavy plate. ArcelorMittal also manufactures billets, rebars, blooms, wire rod, rails, sections, drawn wire and sheet piles.
Arcelor Mittal owns and operates manufacturing plants in the Americas, Europe, Asia and Africa. With its producing plants and mining facilities, ArcelorMittal is present in more than 60 countries all over the world.
The company has customers in about 160 countries and employs approximately 200,000 people worldwide.
In full fiscal 2017, ArcelorMittal generated revenue of approximately $68.7 billion, a 21% increase year over year. Its operating income was $5.43 billion, a 71% increase from full fiscal 2017. Net income totaled $4.57 billion, representing 157% growth from the prior year. Net earnings were $4.13 on a per-share basis.
For full fiscal 2018, consensus is for earnings per share of $5.80 on total revenue of $79.01 billion.
The company shipped about 85.2 million tonnes of steel in 2017, a 1.5% increase year-over-year. For 2018 figures on throughput and sales volumes are predicted to stay stable.
The balance sheet of the company is moderately solid. As of the second quarter of 2018, total assets are valued around $87 billion and total liabilities are valued around $44.6 billion. The total debt is $13.52 billion, leading to a total debt-equity ratio of 34%. That compared to an industry median of 61% indicates that the balance sheet of ArcelorMittal is less leveraged than most of its direct peers.
Based on the debt-Ebitda ratio – a measure of financial leverage – ArcelorMittal is better positioned than its competitors. The company has a ratio of 0.34 versus an industry median of 3.37.
The industry is facing a structural issue of global overcapacity, but this won’t be an obstacle for ArcelorMittal. The steel giant can rely on the outstanding profitability of its operations. It is beating the industry with its trailing 12-month Ebitda margin of nearly 54%. The industry has a median of 9% for the same span.
The exceptional rate of return of its operations will give more stamina to its plan of achieving sustainable value creation for shareholders.
In addition, the forward price-earnings ratio is 6.39. That value, if multiplied by earnings per share of $5.30 (a weighted annual average of predictions for fiscal years 2018 and 2019), yields a value of $33.92 per share, which is 15.4% growth from the current market value.
Disclosure: I have no positions in any security mentioned in this article.
