ArcelorMittal Taking Steps To Build Runway; Jefferies Upgrades

Jefferies’ Seth Rosenfeld upgraded the rating on ArcelorMittal SA (ADR) MT to Hold, while raising the price target to $4.

Runway For Challenges Ahead

Although the company intends to raise additional capital worth $4 billion through asset sale and a rights issue to provide “a runway” to overcome hurdles expected in the coming years.

However, Rosenfeld pointed out that analysis indicates the companies in the steel sector would need to raise 14-63 percent additional capital in order to de-risk its balance sheets.

Related Link: U.S. Steel Is For Real

Liquidity Not A Problem

“While we remain concerned negative FCF may eat into liquidity and note MT's balance sheet is still far from best-in-class, MT has done what the market asked of it. And looking forward, we cannot ignore that the steel market environment is perhaps better than feared as seen in current price momentum and speculation of incremental stimulus drivers,” the analyst stated.

Rosenfeld believes that ArcelorMittal would be better positioned that its peers after the completion of the asset sale and right issue, with the “tail risk” being taken off the table.

Although the analyst pointed out that liquidity did not pose a problem for most steel manufacturers, “continued high leverage and poor earnings will keep investors on the side-lines as structurally negative FCF puts perceived liquidity cover at risk.”