Bull of the day: AM!
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Arcelor Mittal (MT - Analyst Report) operates as global integrated steel and mining company with a presence in more than 60 countries. Headquartered in Luxemburg with over 200,000 employees, the company is the world's leading steel and mining company. It operates a balanced portfolio of cost competitive steel plants across both the developed and developing world. In addition, Arcelor is the world’s fourth largest producer of iron ore. The company is the Bull of the Day after an earnings beat and strength in the industry made the stock a Zacks Rank #1 (Strong Buy).
MT has a market cap of $20 Billion with a Forward PE of 27. The stock has Zacks Style Scores of “C” in Value, Growth and Momentum. The company sits in an industry that is ranked 12 out of 265 (Top 5%) in the Zacks Industry Rank after a string of strong EPS beats from companies within the sector.
A majority of steel companies have already reported earnings and have come well above expectations. Looking at the chart below, we can see that the performance was foreseen by the market as most steel stocks are much higher than they were six months ago. The steel ETF, VanEck Vectors Steel (SLX - ETF report) is up over 80% for the year, led by US Steel, which is up 283% since February. MT was up more the 68% during this timeframe and after an impressive beat the stock has room to catch up to its competitors.
The steel companies that have reported this quarter have all beat and they include the following:
· US Steel (X - Analyst Report) - Upside surprise of 43.64%
· Steel Dynamics (STLD - Snapshot Report) - Upside surprise of 3.57%
· Nucor (NUE - Analyst Report) - Upside surprise of 4.29%
· AK Steel (AKS - Analyst Report) - Upside surprise of 300%
Arcelor Mittal reported on July 29th with a 375% surprise to the upside. The company’s Q2 net income was seen at $1.11 Billion versus the $179 Million seen last year. EBITDA was seen at 1.8 Billion versus the $1.5 Billion expected. The stock jumped over 5% on the news and has still held most of its gains since.
The company issued an outlook saying:
-That despite the steel spread recovery losing momentum in recent weeks, the impact of lagged prices will be an important support for operating results as we move into a period of seasonally slower steel demand.
- Improved market conditions are likely to consume working capital in 2016); the Company nevertheless expects cash flows from operating activities to exceed capex in 2016.
- Sees better market conditions vs 2H 2015, cautiously optimistic about the remainder of the year.
In addition, CEO Lakshmi Niwas Mittalhad some comments on the quarter: “While we are pleased with today’s results, Europe remains exposed to the effects of steel dumping. Although we have been encouraged by the high-level political engagement on this matter in recent months, it remains important that this translates into robust trade defense measures.”
After a long streak of EPS misses and a declining stock price, the company looks to be turning the corner. Last quarter was the third straight beat and the fourth out of the last five quarters. In addition to the beats, the stock price has followed suit, heading higher after earnings each time. Look for this trend to continue as the stock finally has some positive momentum, which hasn’t been seen in over 5 years.
MT will go for its fourth straight EPS upside surprise when it reports in the fall. While esitmates for that quarter are currently flat, estimates for the year have ticked higher over the last 30 days. For fiscal year 2016, estimates went from $0.16 to $0.24 a move of 50%.
Steel companies have been on a roll, but are they still a steal? All signs point to yes as earnings continue to impress and the performance of steel stock continue to excite investors. The stocks are very volatile, with betas over 2, so take opportunities to buy the dips when they come. The long term trend on both earnings and stock price is higher and investors will be rewarded over the long run.