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'Inconvenient Truth:' Bank Of America Downgrades 3 Miners

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Lower price forecasts for coal and iron ore promoted analysts at Bank of America to downgrade a trio of mining concerns.

"It's an inconvenient truth," the bank's Thiago Lofiego said, noting that an oversupply will last longer than expected.

Lofiego cut his rating on Brazilian iron miner Vale SA (NYSE: VALE) to Underperform and shaved his target 22 percent to $7.

At the same time, the bank's Timna Tanners cut her ratings to Underperform on both Consol Energy Inc. (NYSE: CNX) and Peabody Energy Corporation (NYSE: BTU).

Underlying the action, Tanners slashed her 2016 price forecast for thermal coal used for power generation by 28 percent and on metallurgical coke by 18 percent.

A slowdown in demand from China and a foreign exchange-fueled price advantage for Australian suppliers darkens the outlook for U.S. coal miners, Tanner said.

Consol presents "the less bad option" for U.S. coal investors, but Tanner said the consensus earnings estimates for the company "needs to drop with the new market reality."

Tanner cut her Consol target 21 percent to $26.

Peabody has mining operations in both the U.S. and Australia, but Tanner cut her target on the company 14 percent to $5, and increased her estimate of its losses.

Peabody, which recently issued $1 billion in notes faces elevated interest expense and needs to idle more capacity, Tanner said.

As for Vale, Lofiego said the company's dividend is at risk even as it "makes progress" in jettisoning assets and cutting costs.

"There's long-term value there," Lofiego said, "but there good be a better entry point."

Latest Ratings for VALE

DateFirmActionFromTo
Mar 2021BNP ParibasDowngradesOutperformUnderperform
Oct 2020Itau BBADowngradesOutperformMarket Perform
Jul 2020RBC CapitalMaintainsOutperform

View More Analyst Ratings for VALE
View the Latest Analyst Ratings

 

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Posted-In: Bank of America Thiago Lofiego Timna TannersAnalyst Color Downgrades Price Target Analyst Ratings

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