Why Vale (VALE) Stock Is Falling Today

NEW YORK (TheStreet) -- Vale (VALE) was falling -1.9% to $14.08 Friday after missing analysts' estimates for earnings and revenue in the second quarter.

For the second quarter Vale reported earnings of 28 cents a share, missing the Capital IQ Consensus Estimate of 45 cents a share by 17 cents. Revenue fell -7.1% from the year-ago quarter to $9.9 billion, below analysts' expectations of $10.63 billion for the quarter.

The company said it reported lower than expected earnings and revenue due to the low prices for iron ore in the quarter. Vale produced 79.5 million metric tons of iron ore in the quarter, a 13% increase from the year-ago quarter, with an average selling price of $81.03 a ton, an 18% drop from last year.

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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 good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and feeble growth in the company's earnings per share."

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

  • Net operating cash flow has slightly increased to $4,082.00 million or 3.60% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -31.41%.
  • Despite currently having a low debt-to-equity ratio of 0.59, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that VALE's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.57 is high and demonstrates strong liquidity.
  • The gross profit margin for VALE SA is rather high; currently it is at 51.08%. 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 26.46% compares favorably to the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Metals & Mining industry average. The net income has decreased by 18.0% when compared to the same quarter one year ago, dropping from $3,068.10 million to $2,515.00 million.
  • 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 on the basis of return on equity, VALE SA underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • 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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