Headquartered in Luxembourg, Luxembourg, ArcelorMittal S.A. (MT) operates as an integrated steel and mining company in Europe, North and South America, Asia, and Africa. The company sells its steel and mining products to customers in the automotive, engineering, construction, appliance, energy, and machinery industries through a centralized marketing organization and distributors.
MT has iron ore mining activities in Brazil, Bosnia, Canada, Liberia, Mexico, South Africa, and Ukraine, and coal mining activities in Kazakhstan. The stock has a market capitalization of $20.94 billion.
MT’s solid financial position enables it to progress on its strategic objectives and transform its business. “We have completed several targeted acquisitions reflecting the changing energy and metallic inputs required for low-carbon emissions steelmaking and are also seeking to strengthen our presence in regions that can produce low-cost green hydrogen such as Brazil,” said Aditya Mittal, MT’s CEO.
“The long-term outlook for steel demand also remains positive, underpinned by the scale of opportunity related to the energy transition and the continuing growth of developing economies,” he added.
On July 28, MT entered an agreement to acquire Companhia Siderúrgica do Pecém (CSP), a world-class operation producing high-quality slabs at a globally competitive cost. The acquisition might bring several strategic benefits to MT, including the potential to expand its position in the high-growth Brazilian steel industry and capitalize on the significant third-party investment to form clean electricity and green hydrogen in Pecém.
Additionally, CSP’s acquisition might add 3 million tons of high-quality and cost-competitive slab capacity and capture over $50 million in identified synergies, including SG&A, procurement, and process optimization.
On July 1, CSP announced the completion of the acquisition of an 80% shareholding in voestalpine AG’s (VLPNY) Hot Briquetted Iron (HBI) plant located near Corpus Christi, Texas. The state-of-the-art plant has an annual capacity of two million tons of HBI, a premium, a compacted form of Direct Reduced Iron.
The transaction might enhance the company’s ability to the high-quality input materials required for low carbon emissions steelmaking and reinforce its position as a world leader in DRI production.
MT’s shares have gained 12.5% over the past month to close the last trading session at $24.30.
Here is what could influence MT’s performance in the upcoming months:
Robust Financials
MT's sales increased 14.5% year-over-year to $22.14 billion in the fiscal 2022 first quarter ended March 31, 2022. The company's operating income amounted to $4.50 billion, up 1.4% year-over-year. Its EBITDA grew 2.2% year-over-year to $5.16 billion.
Furthermore, the company generated $1.7 billion of free cash flow (FCF) in the second quarter. Its earnings per share came in at $4.24, registering an increase of 22.5% from the prior-year period.
Consensus Rating and Price Target Indicate Potential Upside
Of the four Wall Street analysts that rated MT, three rated it Buy, and one rated it Hold. The 12-month median price target of $42.57 indicates a 76.4% potential upside. The price targets range from a low of $46.00 to a high of $38.00.
High Profitability
MT's trailing-12-month EBIT margin of 21.85% is 54.5% higher than the 14.14% industry average. Its trailing-12-month EBITDA margin of 24.85% is 18.1% higher than the 20.91% industry average. Likewise, the stock's trailing-12-month net income margin of 19.66% is 116.1% higher than the industry average of 9.10%.
Furthermore, MT’s trailing-12-month ROCE, ROTC, and ROTA of 34.06%, 19.22%, and 17.23% are higher than the industry averages of 13.39%, 7.59%, and 5.29%, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, MT’s 2.05x is 81.9% lower than the 11.32x industry average. The stock’s 0.35x forward EV/Sales is 75% lower than the 1.39x industry average. Also, its forward EV/EBITDA multiple of 1.71 compares with the industry average of 6.21.
In addition, MT’s forward Price/Sales multiple of 0.26 compares with the industry average of 1.14. Its 1.90x forward Price/Cash Flow is 71.5% lower than the 9.07x industry average.
POWR Ratings Show Promise
MT's overall A rating equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
MT has a grade of A for Value, in sync with its lower-than-industry valuation. In addition, the stock has a B grade for Quality, consistent with its higher-than-industry profitability.
MT is ranked #13 out of 32 stocks in the A-rated Steel industry.
Beyond what I have stated above, we have also given MT grades for Sentiment, Growth, Momentum, and Stability. Get access to all the MT ratings here.
Bottom Line
MT has achieved strong top and bottom-line results in the first quarter. This momentum, coupled with new strategic acquisitions, the ability to generate healthy cash flow, and a positive long-term outlook for steel demand, demonstrates the company’s strong positioning.
Given the company’s robust financials, low valuation, and high profitability, we think it could be wise to invest in the stock now.
How Does ArcelorMittal S.A. (MT) Stack Up Against its Peers?
MT has an overall POWR Rating of A. One could also check out these other stocks within the Steel industry with an A (Strong Buy) rating: Acerinox, S.A. (ANIOY), voestalpine AF (VLPNY), and Friedman Industries Inc. (FRD).
MT shares were trading at $24.40 per share on Friday afternoon, up $0.26 (+1.08%). Year-to-date, MT has declined -22.41%, versus a -12.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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