Breaking Down Dueling Analyst Notes on ArcelorMittal (MT)

October 14, 2021 9:53 AM EDT
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Price: $27.46 -5.89%

Rating Summary:
    17 Buy, 10 Hold, 3 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 0 | Down: 2 | New: 5
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Shares of ArcelorMittal (NYSE: MT) are trading almost 2% higher amid an overall improvement in the risk sentiment today.

The ArcelorMittal stock is also a subject of dueling analyst recommendations. Credit Suisse analyst Carsten Riek upgraded shares to Outperform from Neutral, citing strong FCF and compelling valuation.

“We adopted a neutral stance on the stock in January 2021 in anticipation of a normalisation of steel profitability starting from 2H’21. Such a normalisation is now more than reflected in MT’s share price, in our view. We increase our EBITDA estimates for 2021 and 2022 by 9% and 12%, respectively, now forecasting US$19.9bn and US$12.8bn, respectively, to reflect better realised steel prices in Europe and the US. While steel prices have started rolling over, affecting the share price, we think the current share-price weakness is an attractive entry point as the group is likely to generate US$17.5bn in FCF over the next three years, on our estimates – c61% of the group’s current market cap,” Riek said in a client note, before adding:

“Given the improvement in the balance sheet and the expected strong FCF yields over the next couple of years, MT’s valuation looks attractive. Not only does the stock trade at 2.8x next year’s estimated EBITDA but also, fundamentally, the stock screens cheap as the current share price reflects a normalised EBITDA/t of US$92/t – a discount of 15% compared to the historical average.”

On the other hand, KeyBanc analyst Philip Gibbs downgraded MT to Sector Weight from Overweight to reflect a weaker global steel margin outlook.

“We downgrade shares of ArcelorMittal to Sector Weight from Overweight amid a lack of catalysts and prospectively falling spot steel metal margins. Since our late-4Q19 upgrade, MT shares have returned 82% ex-dividend vs. the SLX of +58% and the S&P of +41%,” Gibbs said.

The KeyBanc analyst also upgraded Reliance Steel & Aluminum (NYSE: RS) to Overweight from Sector Weight, citing “through-cycle LIFO margin resilience, FCFE generation, and infra optionality.”

Shares of MT are up over 32% YTD.

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