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Will This Downgrade Hurt ArcelorMittal (MT) Stock Today?

Stocks in this article: MT CS

NEW YORK (TheStreet) -- ArcelorMittal (MT) shares were downgraded to "neutral" from "outperform" by Credit Suisse  (CS) Wednesday. The firm lowered the company's price target to $17 from $20.

ArcelorMittal shares were down 2.8% to $15.87 in early trading Wednesday.

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Credit Suisse pointed to a bleak earnings picture in the second quarter for the steel producer as the reason for the downgrade.

"We downgrade the stock to neutral from outperform on lack of earnings momentum, cycle risk and valuation. Although our base case of a restock in the ex-China market remains intact , the timing of this has become increasingly uncertain again, and it is clear that the strong Q2 we had hoped for and expected is now very likely to emerge" Credit Suisse said.

"As such earnings run rates entering the summer are likely to be considerably lower than we had previously forecast and as a consequence we cut our forecasts for 2014 earnings and price target."

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Separately, TheStreet Ratings team rates ARCELORMITTAL SA as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ARCELORMITTAL SA (MT) 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 solid stock price performance, impressive record of earnings per share growth and revenue growth. However, as a counter to these strengths, we also find weaknesses including poor profit margins and weak operating cash flow."

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

  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.9%. Since the same quarter one year prior, revenues slightly increased by 2.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The current debt-to-equity ratio, 0.45, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.45 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • Net operating cash flow has decreased to $2,687.00 million or 19.23% when compared to the same quarter last year. Despite a decrease in cash flow ARCELORMITTAL SA is still fairing well by exceeding its industry average cash flow growth rate of -37.99%.
  • The gross profit margin for ARCELORMITTAL SA is currently extremely low, coming in at 8.30%. Regardless of MT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MT's net profit margin of -6.18% significantly underperformed when compared to the industry average.
  • You can view the full analysis from the report here: MT Ratings Report
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