Rating Change #6

Vale SA ( VALE) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and a generally disappointing performance in the stock itself.

Highlights from the ratings report include:
  • The current debt-to-equity ratio, 0.32, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.16, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for VALE SA is rather high; currently it is at 57.40%. 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 34.30% significantly outperformed against the industry.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Metals & Mining industry. The net income has significantly decreased by 46.8% when compared to the same quarter one year ago, falling from $6,932.51 million to $3,691.51 million.
  • Net operating cash flow has significantly decreased to $3,098.78 million or 53.50% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, VALE SA has marginally lower results.

Vale S.A. engages in the exploration, production, and sale of basic metals in Brazil and internationally. The company is also involved in fertilizers, logistics, and steel businesses. The company has a P/E ratio of 4.3, equal to the average metals & mining industry P/E ratio and below the S&P 500 P/E ratio of 17.7. Vale has a market cap of $93.94 billion and is part of the basic materials sector and metals & mining industry. Shares are down 13.9% year to date as of the close of trading on Friday.

You can view the full Vale Ratings Report or get investment ideas from our investment research center.

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