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TheStreet Open House

Why Mechel OAO (MTL) Is Gaining Today

NEW YORK (TheStreet) -- Mechel OAO (MTL) was gaining 8.5% to $2.04 Friday on news that its subsidiary Mechel Somani Carbon launched a screening facility at coal terminal in Vishakhapatnam on India's east coast.

The new screening facility will let the company sort anthracites from Mechel's coal mining enterprises. The screen facility project capacity is set to handle up to 250,000 tons a year. Mechel plans to seel those 250,000 tons of anthracites in India in 2014, which would make up 20% of the anthracite market in the country.

"The Indian market, where demand for coal continues to grow, is of strategic interest to us," CEO of Mechel Mining Management Company OOO Pavel Shtark said in a press release. "As of now, India annually buys 110 million tonnes of steam coal and 40 million tonnes of coking coal. Experts estimate that by 2020 India will be importing up to 120 million tonnes of coking coal of various grades. Considering the favorable forecasts for the future, Mechel's efforts are aimed not only at building up stable ties directly with all kinds of clients, but also at setting up necessary infrastructure."

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TheStreet Ratings team rates MECHEL OAO as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate MECHEL OAO (MTL) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 330.7% when compared to the same quarter one year ago, falling from $54.91 million to -$126.69 million.
  • The debt-to-equity ratio is very high at 10.29 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.19, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, MECHEL OAO's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $222.97 million or 51.29% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, MECHEL OAO has marginally lower results.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 68.51%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 230.43% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • You can view the full analysis from the report here: MTL Ratings Report

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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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