The news broke Wednesday afternoon and caused Brazilian stocks, including Vale, to decline.
The mining company also suffered from a drop in iron ore prices thanks to a falling credit gauge in China. Iron ore with 62% iron content delivered to Tianjin fell 0.9% to $93.20 per dry ton, according to Bloomberg. This marks the lowest price since June 20. China’s measure of new credit declined in July, which has caused some concern that demand will slow in the Asian nation.
Must Read: Warren Buffett’s 25 Favorite StocksEXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he and Stephanie Link think could be potentially HUGE winners. Click here to see the holdings for FREE. The stock was down 2.47% to $13.41 at 11:18 a.m. Separately, 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 good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself." Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Net operating cash flow has slightly increased to $4,082.00 million or 3.60% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -22.15%.
- Despite currently having a low debt-to-equity ratio of 0.59, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that VALE's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.57 is high and demonstrates strong liquidity.
- The gross profit margin for VALE SA is rather high; currently it is at 51.08%. Regardless of VALE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VALE's net profit margin of 26.46% compares favorably to the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Metals & Mining industry average. The net income has decreased by 18.0% when compared to the same quarter one year ago, dropping from $3,068.10 million to $2,515.00 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, VALE SA underperformed against that of the industry average and is significantly less than that of the S&P 500.
- You can view the full analysis from the report here: VALE Ratings Report
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