Vale Stock Closes Higher on Indications of Iron Ore Production Cut

NEW YORK (TheStreet) -- Shares of Vale  (VALE) closed higher by 5.08% to $8.07 on Friday after the Brazilian iron ore producer indicated possible production cuts.

The company said Thursday that it could reduce its expected iron ore production by up to 30 million tons during the next two years as it attempts to revive its margin amid an ongoing and severe commodity price decline.

An increase in capacity "enables us to close higher-cost and lower-quality production if necessary," said Vale Head of Ferrous Peter Poppinga on a conference call, according to Reuters. "The capacity will be there, 450 million tonnes, and we are going to use it according to market conditions."

Prices of the steel making ingredient are near their lowest in a decade, as they have dropped 47% in the past year.

Separately, TheStreet Ratings team rates VALE SA as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate VALE SA (VALE) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself."

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

  • VALE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 47.61%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, VALE is still more expensive than most of the other companies in its industry.
  • 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. 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.
  • VALE 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. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, VALE SA increased its bottom line by earning $0.13 versus $0.01 in the prior year. For the next year, the market is expecting a contraction of 107.7% in earnings (-$0.01 versus $0.13).
  • VALE's debt-to-equity ratio of 0.67 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.85 is weak.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 18.8%. Since the same quarter one year prior, revenues fell by 15.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • You can view the full analysis from the report here: VALE Ratings Report

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