Why Steel Was Up Today

NEW YORK (TheStreet) -- Steel stocks rallied today despite disappointing news from the third largest U.S. steel maker -- Nucor  (NUE) -- that its guidance had missed analysts' estimates. This was trumped by news that the world's largest steel maker ArcelorMittal  (MT) was increasing prices on its hot rolled coil to $33 per hundredweight and coated products to $39.50 per cwt.

Steel stocks responded by increasing across the board. U.S. Steel (X) was up 1.3% to $25.50. AK Steel  (AKS) was up 6.5% to $6.52. Steel Dynamics  (STLD) finished up 1.5% to $16.93.

Steel has been down big overall this year and Credit Suisse downgraded earnings expectations for the sector on Friday.

Must read: Warren Buffett's 10 Favorite Stocks

TheStreet Ratings team rates ARCELORMITTAL SA as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate ARCELORMITTAL SA (MT) 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 impressive record of earnings per share growth, revenue growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and a generally disappointing performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ARCELORMITTAL SA reported significant earnings per share improvement 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. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ARCELORMITTAL SA continued to lose money by earning -$1.46 versus -$2.23 in the prior year. This year, the market expects an improvement in earnings ($1.00 versus -$1.46).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.8%. Since the same quarter one year prior, revenues slightly increased by 2.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.45, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 0.45 is very low and demonstrates very weak liquidity.
  • The gross profit margin for ARCELORMITTAL SA is currently extremely low, coming in at 8.30%. Regardless of MT's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, MT's net profit margin of -6.18% significantly underperformed when compared to the industry average.
  • You can view the full analysis from the report here: MT Ratings Report
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