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Will Vale Miss Earnings in 1Q13?

Zacks Equity Research

Mining giant, Vale S.A. (VALE) is set to report first quarter 2013 results on Apr 24. Last quarter it posted a 26.00% negative surprise. Let’s see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Vale recently reported its production report for the first quarter 2013. Iron ore production saw a year-over-year decline of 3.5% due to the impediments pertaining to license delays and other operational issues. Also, pellet production declined in the quarter. However, coal production reached its peak in the quarter, led by increased production of metallurgical coal.

Vale is facing continuous difficulties in maintaining its margins as the prices of most of its commodities have taken a downward trend. However, the company’s continued efforts to focus on its core business through the divestiture of its non-profitable and low margin assets seem encouraging.  

Earnings Whispers?

Our proven model does not conclusively show that Vale is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  This is because the Most Accurate Estimate stands at 31 cents while the Zacks Consensus Estimate is higher at 43 cents. That is, there is a difference of -27.91%.

Zacks Rank #3 (Hold). Vale’s Zacks Rank #3 (Hold) lowers the predictive power of ESP because the Zacks Rank #3 when combined with a negative ESP makes a surprise prediction difficult. We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

Thompson Creek Metals Company (TC), Earnings ESP of 200.0% and a Zacks Rank #3 (Hold)

Peabody Energy Corp. (BTU), Earnings ESP of 100.0% and a Zacks Rank #3 (Hold)

CONSOL Energy Inc. (CNX), Earnings ESP of 20.0% and a Zacks Rank #3 (Hold).

Read the Full Research Report on VALE

Read the Full Research Report on CNX

Read the Full Research Report on BTU

Read the Full Research Report on TC

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