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Why Vale (VALE) Is Down Today

NEW YORK (TheStreet) -- Vale (VALE) was falling 2.2% to $12.53 Tuesday on weak demand for iron ore in China.

Price of iron ore with 62% content delivered to Tianjin are down 8.3% to $105 a dry ton. The price is the lowest since October 2012 and the biggest drop in four years. The price drop caused concern for many iron producers.

In a note to investors J.P. Morgan analysts Rodolfo Angele, Mandeep Singh Manihani, and Lucas Ferreira warned that ore prices could test September 2012 lows of about $87 a ton. The analysts maintain a positive outlook for Vale, however, maintaining the miner's "buy" rating.

"Vale would still be breakeven on 2014E FCF even at an average iron ore price of $72/t, which should provide comfort on the balance sheet side," the analysts wrote. "Our DCF analysis estimates an implied iron ore price of real $75/t until perpetuity assuming spot copper and nickel prices, which, in our view, is an unlikely scenario."

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TheStreet Ratings team rates VALE SA as a Hold with a ratings score of C. TheStreet Ratings 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 expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

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

  • The gross profit margin for VALE SA is rather high; currently it is at 56.41%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -62.28% is in-line with the industry average.
  • VALE, with its decline in revenue, underperformed when compared the industry average of 8.4%. Since the same quarter one year prior, revenues slightly dropped by 7.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has significantly decreased to $917.62 million or 70.16% 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 27.42%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 138.18% compared to the year-earlier 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.
  • You can view the full analysis from the report here: VALE Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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