Why Analyst Opinions Are So Divided over ArcelorMittal
What’s Wall Street Saying About the Steel Industry?
Analyst opinions
According to data compiled by Bloomberg, 30% of analysts rate ArcelorMittal (MT) a “buy,” while 20% have given the stock a “sell” rating. Almost half of the analysts rate the stock a “hold.” The company’s one-year consensus price target of $6.63 represents a 113% upside. However, analyst opinions are quite divided over MT. Let’s see how.
Divided opinion
Cowen and Steubing have placed bullish bets on ArcelorMittal. Both these companies have set a one-year target price of $13 on ArcelorMittal. Interestingly, Steubing, a Germany-based company, has set a target price of $13 on ArcelorMittal with a “hold” rating. It’s important to note that ArcelorMittal is widely covered by Europe-based brokerage houses, as the company is listed on European stock markets (VGK). Meanwhile, Jefferies seems to be among the most bearish on ArcelorMittal, giving it a one-year price target of $3.
Why this variety of opinion?
As you can see, there’s a big difference between analyst opinions of ArcelorMittal. This is partially attributable to the outlook for the steel industry. Some analysts see early signs of green in the industry, while others see global turmoil taking its toll on the entire materials space (XLB).
Analyst opinion is also likely divided over ArcelorMittal’s ability to service its upcoming debt maturities. MT does face annual debt maturities in excess of $2 billion each year until 2019. There are genuine concerns over MT’s ability to roll over its debt. The company has even announced a rights issue totaling $3 billion to cut its net debt. You can read more about the challenges facing ArcelorMittal in our series ArcelorMittal’s Slump: Pointing the Steel Finger in 4Q15.
Analysts seem to be banking on MT’s chairman Lakshmi N. Mittal to bail out the company. Mittal and his family collectively hold more than a third of MT. That’s way too much to let MT fail. Even the recently announced rights issue will see the Mittal family putting more than $1 billion into MT.
Other steel companies with high financial leverage such as AK Steel (AKS) and United States Steel (X) don’t have the backing of a billionaire owner pumping cash into the company.
Finally, the performance of steel companies this year will depend on the movement in spot steel prices and the clampdown on cheap imports. In our next series, we’ll be taking a look at the recent steel industry indicators that are shaping up.
You can also visit Market Realist’s Steel page to track other recent developments in this industry.
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