NEW YORK (TheStreet) --Shares of Vale SA (VALE) are falling by 7.68% to $2.35 on heavy trading volume on Tuesday afternoon, as the metals and mining company drew down $3 billion from a revolving credit line in order to pay debt due this quarter, Reuters reports.
The move highlights the iron ore and iron ore pellets producing company's weak finances amid a low commodity price market as asset sales falter.
Analysts are expecting the Brazil-based company to suffer a shortfall of cash in 2016, Reuters added. The company took the draw down to delay the closing of a deal announced in 2014 to sell a stake in its Mozambique coal project to the Japanese trader Mitsui & Co.
The closing will depend on the securing of project financing for the coal mine and the connecting of rail and port, Reuters noted. This is something the companies have not yet been able to achieve.
Vale was looking for up to $2.7 billion in project financing when the deal was first announced.
Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate VALE SA as a Sell with a ratings score of D. This is driven by some concerns, 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 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:
- 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 decreased to $1,629.00 million or 44.59% 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.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 67.51%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 46.42% 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's earnings per share declined by 46.4% in the most recent quarter compared to 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 539.2% in earnings (-$0.57 versus $0.13).
- The change in net income from the same quarter one year ago has significantly exceeded that of the Metals & Mining industry average, but is less than that of the S&P 500. The net income has significantly decreased by 47.3% when compared to the same quarter one year ago, falling from -$1,437.00 million to -$2,117.00 million.
- You can view the full analysis from the report here: VALE