Vale Stock Gains Despite Industry Oversupply Caution

NEW YORK (TheStreet) -- Vale S.A. (VALE) shares are up 0.33% to $6.83 in early market trading on Wednesday despite comments from BHP Billiton  (BHP) CEO Andrew Mackenzie that put negative pressure on the mining industry today.

Mackenzie, CEO of the world's largest mining company, said that the current oversupply on the market would keep prices low for the foreseeable future, according to Bloomberg.

"In many markets, recently installed low-cost supply can now be stretched to meet growing demand. Incremental supply, induced during periods of higher prices, will take longer to absorb and this means over-supply may persist for some time," Mackenzie said.

Analysts at UBS Group estimate that the global surplus of iron ore from the industries largest producers will increase to 215 million tons in 2018 from its current level of 45 million this year, according to Bloomberg.

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 several 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. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

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

  • 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 224.0% when compared to the same quarter one year ago, falling from $2,515.00 million to -$3,118.00 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, VALE SA's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $531.00 million or 86.99% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 50.23%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 224.48% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • VALE SA has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings 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 215.4% in earnings (-$0.15 versus $0.13).
  • You can view the full analysis from the report here: VALE Ratings Report

More from Markets

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

Week Ahead: Trade Fears and Stress Tests Signal More Volatility To Come

Trump Takes Aim at Auto Imports; Markets End Mixed -- ICYMI

Trump Takes Aim at Auto Imports; Markets End Mixed -- ICYMI

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

Flashback Friday: The Market Movers

Flashback Friday: The Market Movers