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TheStreet Open House

Vale S.A. (VALE) Still a "Hold," Says TheStreet

NEW YORK (TheStreet) -- Brazilian steelmaker Vale S.A. (VALE) popped on Wednesday despite fears of a spreading emerging-market contagion

By late morning, shares had added 3.4% to $13.65, a welcome respite from its falls over January.

In the year to date, the stock has taken off 10.6% as Wall Street expresses concern over global economic health, particularly in developing nations. Also impacting the stock, last week iron ore prices, a key component of steel, fell to a six-month low and economic data suggested slowing steel production.  VALE Chart VALE data by YCharts

TheStreet Ratings team reiterates VALE SA as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate VALE SA (VALE) a HOLD. The primary factors that have impacted our rating are mixed --some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, weak operating cash flow and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.2%. Since the same quarter one year prior, revenues rose by 13.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.42, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.18, which illustrates the ability to avoid short-term cash problems.
  • VALE SA reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, VALE SA reported lower earnings of $0.94 versus $3.87 in the prior year. This year, the market expects an improvement in earnings ($2.23 versus $0.94).
  • VALE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 34.11%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
  • Net operating cash flow has decreased to $4,632.98 million or 21.96% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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