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Can Vale’s 1Q16 Results Justify Its Recent Price Performance?

All Eyes Are on Vale's 1Q16 after Positive Production News

Iron ore’s price rally

Iron ore prices surged despite most market participants’ expecting the contrary in 1Q16. Compared to the low point it reached on December 11, 2015, iron ore rose an impressive 59% to $62 per ton as of April 19, 2016. Year-to-date (or YTD), the commodity (COMT) has risen 41%.

Iron ore miners’ performances

With firmer iron ore prices, iron ore miners have recuperated their losses. On a relative basis, Cliffs Natural Resources (CLF) has outperformed its peers, with a YTD rise of 182% as of April 19. Vale (VALE) has shown the next best performance, with a YTD rise of 82%.

Cliffs has other drivers behind its rally, such as improving sentiment in the US steel market—its main customer focus—among seaborne-exposed names. However, Vale has risen the most. Fortescue Metals Group (FSUGY) has also risen 63%.

On the other hand, Rio Tinto (RIO) and BHP Billiton (BHP) (BBL) have risen 7% and 8%, respectively.

Vale is highly leveraged to iron ore prices compared to BHP or RIO, given its lack of commodity diversification and its higher financial and operational gearing. This has led to Vale’s relative outperformance in a rising iron ore price environment.

Series preview

In this series, we’ll look at analysts’ recommendations and 1Q16 earnings expectations for Vale. It’s important to note that analysts’ estimates usually lag behind price movements. We see upgrades coming when stocks have already risen. As for downgrades, they come when a company has already seen downward price action.

Still, it’s important to look at changes in analysts’ estimates to gauge the Market’s sentiment regarding a stock. Vale is expected to release its 1Q16 earnings on April 28, 2016.

Vale reported its 1Q16 production results on April 20, 2016. We’ll also discuss the key highlights of Vale’s production for the quarter. Let’s start by looking at analysts’ recommendations for Vale.

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