UPDATE: Goldman Sachs Adds Arcelor Mittal (MT) to Conviction Buy List; Analyst Sees 35% Upside

(Updated - April 12, 2016 11:06 AM EDT)

Goldman Sachs upgraded Arcelor Mittal (NYSE: MT) from Neutral to Conviction Buy with a price target of 5.40 euro, implying upside of 35%. Analyst Stephen Benson sees potential for an inflection in the China steel market, and he views Arcelor Mittal' valuation as compelling.

"Global steel prices decreased sharply on the back of increasing exports from China over the last few years. However, the China steel market looks to be on the cusp of a near term inflection: capacity is shutting; inventories are light; feedback from our China Steel team and from our recent visit to China suggest a better outlook for infrastructure and demand in the near term," said Benson. "Structural headwinds remain over the long term but for now there may be breathing space for EU steel companies at a time when operating and financial leverage provides material upside for stocks."

Discussing Arcelor Mittal, the analyst said, "We view the current valuation as compelling at spotand the near-term earnings momentum we expect. The balance sheet has been significantly de-risked following the US$3 bn equity raise and US$1 bn asset sale (Gestamp). Restructuring is also ongoing as announced with the recent equity raise, and the company announced a new 2020 plan with new EBITDA/t targets. This year to date, steel spot prices and metal spreads have increased globally, which should start flowing through to ArcelorMittal’s P&L over the coming quarters, driving upgrades to consensus estimates for 2016 and 2017 in our view. Pressure in Asia on production and exports has eased so far this year, while further trade case announcements in the EU and US could be positive for sentiment."

For an analyst ratings summary and ratings history on Arcelor Mittal click here. For more ratings news on Arcelor Mittal click here.

Shares of Arcelor Mittal closed at $5.03 yesterday.

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