Why Vale (VALE) Shares Are Falling Today

NEW YORK (TheStreet) -- Vale (VALE) was falling 0.9% to $13.70 Tuesday on news that JP Morgan cut its 2014 iron ore price forecast 6% to $118 a metric ton.

JP Morgan analysts expect demand for iron ore from China will grow more slowly than expected, cutting estimates to 3.5% growth from 5% growth. Vale rivals Rio Tinto (RIO), BHP (BHP), and Fortescue (FSUMF) are expected to add pressure to pricing by adding about 100 metric tons of supply in 2014.

Iron ore spot prices rose 4% to $166.8 a ton in Shanghai Monday.

Despite the lower price forecast Vale says it will generate positive cash flow through 2014.

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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 21.56% 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

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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.

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