ArcelorMittal Down to Strong Sell - Analyst Blog

On Mar 19, Zacks Investment Research downgraded steel giant ArcelorMittal MT to a Zacks Rank #5 (Strong Sell).

Why Downgraded?

ArcelorMittal, on Feb 7, posted a net loss of $1.2 billion or 69 cents per share for the fourth quarter of 2013, narrower than the net loss of $3.8 billion or $2.47 per share a year ago, thanks to lower impairment charges. Adjusted loss, however, was 31 cents per share, wider than the Zacks Consensus Estimate of a loss of 16 cents per share. For full-year 2013, ArcelorMittal posted a net loss of $2.5 billion, or $1.46 per share, lower than the net loss of $3.4 billion, or $2.17 per share recorded in 2012.

ArcelorMittal has delivered negative earnings surprises in three of the last four quarters, with an average negative surprise of 233.76% for the trailing four quarters.

Revenues rose 2.8% year over year to $19.8 billion in the reported quarter but missed the Zacks Consensus Estimate of $20.1 billion. For full-year 2013, revenues decreased 5.7% to $79.4 billion in 2013 from $84.2 billion in 2012, mainly due to lower average steel selling prices.

ArcelorMittal continues to grapple with challenging economic conditions in Europe. It is also exposed to volatility in steel pricing and tough competition.

Increased domestic imports, production ramp-ups by peers and increased Chinese production have led to oversupply in the steel industry, which in turn, is causing a decline in steel prices.

Moreover, demand for steel remains weak in Europe. Steel demand fell in Europe in 2013 and is currently about 30% below pre-crisis levels. ArcelorMittal has closed some its operations in the region, given slack demand and the weak European economy. Recovery in the demand environment in the region is expected to be sluggish this year.

Considering the challenging economic conditions, ArcelorMittal reduced its annual dividend in 2013. The company intends not to increase the dividend or ramp-up any major steel growth capital expenditure until the medium-term $15 billion net debt target has been achieved and market conditions improve in 2014.

The Zacks Consensus Estimate for 2014 for ArcelorMittal has gone down roughly 1.07% to 92 cents per share since the fourth-quarter 2013 earnings release. The Zacks Consensus Estimate for 2015 has also declined 11.25% to $1.42 per share.

Other Stocks to Consider

Stocks in the steel and related industries with a favorable Zacks Rank are AK Steel Holding Corp. AKS, Timken Co. TKR and Worthington Industries, Inc. WOR. While AK Steel carries a Zacks Rank #1 (Strong Buy), Timken and Worthington Industries hold a Zacks Rank #2 (Buy).