NEW YORK (TheStreet) -- Shares of the Brazilian steel maker and iron-ore mine owner Gerdau SA (GGB) fell to a 52-week low of $3.56 today on heavy trading volume after JPMorgan said iron-ore prices will extend declines as growth in low-cost supply from the world's largest producers outstrips demand, cutting forecasts through 2017, Bloomberg reports.
Gerdau's iron-ore division posted far weaker results in the third quarter of 2014 than in the year-ago period, reflecting the drop in prices, the Wall Street Journal said. The division's Ebitda margin sank to just 4.8% in the third quarter of this year, compared with 39% a year earlier, and that compared with a company-wide Ebitda margin of 16.5%, the Journal added.
Ebitda margins of the division could shrink even more in light of JP Morgan analysts' estimates that the steel-making raw material will average $67 a metric ton next year, 24% less than previously forecast, and $65 in 2016, down 23%, according to the report, Bloomberg said.
So far this year, iron-ore has averaged $98.82 a ton, according to data from Metal Bulletin Ltd.
About 9.22 million shares changed hands by 3:20 p.m. in New York, compared to the average of 6.02 million shares.
Separately, TheStreet Ratings team rates GERDAU SA as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate GERDAU SA (GGB) 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 attractive valuation levels, notable return on equity and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, poor profit margins and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Metals & Mining industry and the overall market, GERDAU SA's return on equity has significantly outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- The revenue fell significantly faster than the industry average of 3.4%. Since the same quarter one year prior, revenues fell by 27.0%. 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 $215.99 million or 73.77% 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 company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 74.2% when compared to the same quarter one year ago, falling from $266.83 million to $68.73 million.
- You can view the full analysis from the report here: GGB Ratings Report