JP Morgan's commodities team raised its 2014 and 2015 forecasts for nickel by 22% to $18,540 a ton and by 52% to $24,000 a ton, respectively. The team said the raised prices for nickel should help boost Vale's 2014 and 2015 EBITDA by 4% and 10%, respectively.
The nickel price increases will add $600 million to 2014 free cash flow estimates, and$1.7 billion to 2015 free cash flow estimates.
About 90% of Vale's EBITDA comes from iron ore, with nickel making up a small part of the company's business.
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 expanding profit margins and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for VALE SA is rather high; currently it is at 56.41%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -62.28% is in-line with the industry average.
- VALE, with its decline in revenue, underperformed when compared the industry average of 7.9%. Since the same quarter one year prior, revenues slightly dropped by 7.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Net operating cash flow has significantly decreased to $917.62 million or 70.16% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- The share price of VALE SA has not done very well: it is down 17.26% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
- You can view the full analysis from the report here: VALE Ratings Report
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.