BofA Upgrades ArcelorMittal, Sees 21% Upside Potential

In a report published Friday, Bank of America Merrill Lynch analysts upgraded the rating on

from Neutral to Buy, with a price target of €12.50. The company's CFO expressed his optimism regarding margin recovery in the European steel sector going forward. The analysts expect the company's Q2 earnings to reflect sequentially stable profitability, despite the quarter on quarter decline predicted for mining earnings, driven by cost cuts in steel and increased shipments, which are likely to lead to slower earnings growth going into 2H. "We also think growing trade protectionism in Europe is a positive catalyst," the analysts said, while adding that the challenges for steel globally were "very well understood by investors." Although the global steel market is currently oversupplied, decline in steel exports out of China, year to date, and the increasing probability of trade protectionism in Europe indicate that margin compression in the industry could be diminishing. "ArcelorMittal gives leverage to the unfolding margin recovery story in European steel and we think valuation is supportive," the analysts added.