ArcelorMittal (MT, Financial) fell 2.92% to $27.90 per share on the New York Stock Exchange Thursday on the publication of sell-side analyst forecasts for its third-quarter Ebitda.
The Luxembourg-based multinational steel manufacturing corporation said that consensus is for Ebitda of $2.75 billion. The forecast – which is an average of 20 estimates – represents a 6.6% increase from the previous quarter and 68% growth from the prior-year quarter.
Estimates of Ebitda are very important for investors for two reasons. First, it is the first and most reliable piece of information on which predictions of net earnings per share are based. Predictions on net earnings for the upcoming period influence the market value of the stock. Second, compared to revenue, Ebitda gives a meaningful indication of the profitability of the company.
ArcelorMittal operates in a highly capital-intensive industry, and the Ebitda margin is the most-used ratio in this industry to screen for bargains. ArcelorMittal has a trailing 12-month Ebitda margin of 13% of total revenues versus an industry median of 9%.
If the company beats consensus on third quarter Ebitda, the subsequent margin will grow at least 80 basis points to 13.7%, considering that analysts are projecting third quarter revenue to $19.66 billion. That will be about 11.5% growth from prior-year quarter sales.
Such advancement in the profitability and growth of the company should trigger stock appreciation. The share price at close Oct. 18 seems to offer a convenient entry because it is far below the 200-, 100- and 50-SMA lines. The share price at close Thursday is also a slim 2.7% above the 52-week low of $27.17 and 34.4% from the 52-week high of $37.50.
A further indication that it is a cheap stock is its price-book ratio of 0.71, compared to an industry median of 0.99.
A 14-day Relative Strength Indicator of 36.23 compared to a historical 30 to 70 range suggests that the share price is near oversold levels and a reversal to uptrend may start soon.
Consensus is also optimistic about ArcelorMittal for the next 52 weeks. In fact, as of the month of October, there are three analysts with a buy rating, one who is highly bullish and another analyst with a hold rating. One analyst believes it will underperform. As a result, the recommendation rating is 1.5 out of 5.
With an average target price of $43.26 the expected appreciation is 55% from the share price at close Thursday. The estimate is a mean of five predictions ranging from $36.76 to $47.53.
There isn’t any doubt that ArcelorMittal is an interesting prospect in the steel mining industry, but it is good to be cautious anyway. The demand for steel is going to be hurt by rising interest rates. The Federal Reserve is considering hiking interest rates by 0.25 basis points to 2.5% in December and by an additional 0.5 basis points to 3% in 2019.
Declining steel demand together with an increase in the supply of steel will impinge on the price of hot-rolled coil steel, which is already down trending. U.S. Midwest domestic hot-rolled coil steel futures (HRCc1) are about 2% down from June/July levels to $835 per short ton as of Thursday.
On the supply side, for the beginning of 2018 through the week of Oct. 13, domestic raw steel production already grew 4.8% to 74,201,000 net tons, compared to the same period of 2017 according to the American Iron and Steel Institute.
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. The company 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.
Disclosure: I have no positions in any security mentioned.
Read more here:Ă‚
