Nomura Downgrades Vale, BHP Billiton From Buy To Neutral

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Nomura’s Alexander M. Burnes said that Global Metals & Mining represented a “tale of paradigms & anarchy.” He added that the view on the sector was cautious, and recommended quality stocks.

An earlier report had suggested that the incentive pricing theory [IPT] model for long-term commodity price forecasting was not only unreliable, but possibly led to the exact opposite of its predictions. “This idea generated significant debate among investors and the natural resources industry,” Burnes wrote.

Over 2015, consensus long-run commodity price forecasts have been lowered by around 25 percent, resulting in the Mining sector’s material underperformance.

“We believe it is time to consider ditching the ‘cycle’ view of commodities and natural resources industries,” the analyst said. He added that an analysis of 150 years of real base metals and oil prices indicated that structural shifts were more significant drivers of long-term commodity prices than general macroeconomic cycles.

Changes

  • BHP Billiton Limited (ADR) BHP - downgraded from Buy to Neutral.
  • Vale SA (ADR) VALE - downgraded from Buy to Neutral, with the price target lowered from $3.5 to $3. The EPS estimates for FY16 and FY17 have been reduced from $0.24 to $0.09 and from $0.52 to $0.23, respectively.
  • Alcoa Inc AA – maintained at Neutral, with the price target at $8. The EPS estimates for FY16 and FY17 have been reduced from $0.37 to $0.33 and from $0.62 to $0.43, respectively.
  • Century Aluminum Co CENX – maintained at Neutral, with the price target at $5. The EPS estimates for FY16 and FY17 have been reduced from ($0.31) to ($1.52) and from ($0.27) to ($0.84), respectively.
  • Cliffs Natural Resources Inc CLF - maintained at Reduce, with the price target at $1.5. The EPS estimates for FY16 and FY17 have been reduced from ($0.71) to ($0.78) and from ($0.28) to ($1.05), respectively.
  • Freeport-McMoRan Inc FCX – maintained at Neutral, with the price target at $7. The EPS estimates for FY16 and FY17 have been revised from $0.22 to $0.24 and from $1.07 to $1.05, respectively.
  • Teck Resources Ltd (USA) TCK – maintained at Neutral, with the price target at $6. The EPS estimates for FY16 and FY17 have been revised from $0.21 to $0.28 and from $0.75 to $0.60, respectively.
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Posted In: Analyst ColorShort IdeasDowngradesPrice TargetAnalyst RatingsTrading IdeasAlexander M. BurnesNomura
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