NEW YORK (TheStreet) -- Vale (VALE) - Get Report stock is down by 3.42% to $4.52 in late afternoon trading on Friday, as Brazil's economy slides further after Federal Reserve Chairwoman Janet Yellen hinted on Wednesday that the U.S. central bank will hike interest rates this year.
Higher interest rates in the U.S. would give investors who once looked to Brazil for relatively higher yields further reason to pull money from the country, according to The Wall Street Journal.
Additionally, Brazil is facing its longest recession since the 1930s, with the real near all-time lows, unemployment up for an eighth consecutive month in August, inflation close to 10% and a budget shortfall around 8% of the country's economic output, The Journal reports.
Worsening the country's economic troubles, lawmakers and hundreds of thousands of protesters have called for the resignation or impeachment of President Dilma Rousseff, which investors worry will interfere with the success of her proposals to close the 2016 budget gap.
The S&P cut Brazil's sovereign rating to junk earlier this month because of the budget deficit, and strategists have not ruled out further downgrades, according to Barron's.
Separately, TheStreet Ratings team rates VALE SA as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
We rate VALE SA (VALE) a SELL. This is driven by several weaknesses, 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 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:
- 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, VALE SA'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 $996.00 million or 78.32% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- 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 58.44%, 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. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
- VALE SA has improved earnings per share by 17.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, VALE SA increased its bottom line by earning $0.13 versus $0.01 in the prior year. For the next year, the market is expecting a contraction of 250.8% in earnings (-$0.20 versus $0.13).
- VALE's debt-to-equity ratio of 0.74 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.73 is weak.
- You can view the full analysis from the report here: VALE