NEW YORK (TheStreet) -- Vale S.A. (VALE) - Get Vale SA Report shares are sliding 4.2% to $3.42 on Monday as Brazilian officials are planning to file a multi-billion dollar lawsuit against the Brazilian mining company for damages caused by a dam burst.
Earlier this month, a mine dam in Rio Doce, a major river in Brazil, jointly owned with Anglo-Australian miner BHP Billiton (BHP) burst.
The incident was due to a mudslide that wiped out a nearby town of Mariana and flooded the Rio Doce river, Reuters reports.
As a result, at least 13 people died and six still remain missing, according to the Wall Street Journal.
The Brazilian government is set to officially file a lawsuit today and is suing BHP Billiton, Vale, and their joint venture for $5.2 billion in damages and clean up costs, Reuters added.
Additionally, Vale confirmed that toxic chemicals like arsenic were found in the river water following the dam burst.
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 a few notable 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, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- 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, VALE SA's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has decreased to $1,629.00 million or 44.59% when compared to the same quarter last year. Despite a decrease in cash flow of 44.59%, VALE SA is in line with the industry average cash flow growth rate of -54.27%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 60.32%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 46.42% 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.
- VALE SA's earnings per share declined by 46.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings 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 461.5% in earnings (-$0.47 versus $0.13).
- The change in net income from the same quarter one year ago has significantly exceeded that of the Metals & Mining industry average, but is less than that of the S&P 500. The net income has significantly decreased by 47.3% when compared to the same quarter one year ago, falling from -$1,437.00 million to -$2,117.00 million.
- You can view the full analysis from the report here: VALE