ArcelorMittal: Likely Past The Cyclical Low

seekingalpha09-04

ArcelorMittal's Q2 2024 EBITDA was $1.5 billion, showing resilience despite lower steel prices; management expects further EBITDA decline in Q3 due to weak demand.Steel prices have likely bottomed, ...

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management expects further EBITDA decline in Q3 due to weak demand.Steel prices have likely bottomed, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4718855-arcelormittal-stock-likely-past-cyclical-low\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"AMSYF","symbol_name":"ArcelorMittal","start_time":0,"source_url":"https://seekingalpha.com/article/4718855-arcelormittal-stock-likely-past-cyclical-low","article_id":"2464322762","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1342641196/image_1342641196.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2464322762","pubTimestamp":1725440959,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"ArcelorMittal's Q2 2024 EBITDA was $1.5 billion, showing resilience despite lower steel prices; management expects further EBITDA decline in Q3 due to weak demand.Steel prices have likely bottomed, wi","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"AMSYF":"ArcelorMittal","BK4006":"钢铁","MT":"安赛乐米塔尔","BK4561":"索罗斯持仓"},"translate_title":"安赛乐米塔尔：可能已经度过周期性低点","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMSYF":1,"MT":1},"content_text":"ArcelorMittal's Q2 2024 EBITDA was $1.5 billion, showing resilience despite lower steel prices; management expects further EBITDA decline in Q3 due to weak demand.Steel prices have likely bottomed, with market corrections and production cuts in China positioning ArcelorMittal for recovery.Strategic capex in Brazil and India is set to drive a 25% EBITDA increase, supporting a positive long-term outlook and potential market rebound.I consider ArcelorMittal shares undervalued, estimating a fair value of $44/share, indicating an 83% upside based on a residual earnings model.   HJBC ArcelorMittal's (NYSE:MT) Q2 2024 performance showed resilience, with the company achieving an EBITDA of $1.5 billion despite the impact of lower steel prices across all divisions. Although management expects a further EBITDA decline in Q3 due to continued price pressures and weak demand, steel prices appear to have stabilized at a cyclical low. Indeed, signs of market correction, such as trade protections and potential production cuts in China, position ArcelorMittal well for a rebound. The company's progress on its strategic capex plan, particularly in growth markets like Brazil and India, is expected to drive a 25% EBITDA increase in the coming years, which should support a positive long-term outlook for the company. All things considered, I view ArcelorMittal shares as undervalued. Based on a residual earnings model, I estimate the fair implied value of MT equity at around $44/share (projecting around 83% upside). To provide context, ArcelorMittal shares have grossly underperformed the broader market since the beginning of the year: YTD, ArcelorMittal stock has lost about 17%, while the S&P 500 (SP500) has gained around 18%. Seeking Alpha   Q2 Looks Solid ... ArcelorMittal's Q2 performance was quite solid, despite a notable drop in steel prices at macro level during the quarter, which negatively impacted EBITDA across all divisions. During the period spanning from April through end of June, ArcelorMittal's ability to navigate through the cyclical downturn with disciplined cost management and strategic focus on higher-margin products. The Q2 EBITDA stood around $1.5 billion, which was about in line with analyst consensus expectations, according to data collected by Refinitiv. ArcelorMittal's management reiterated a cautious outlook for the second half of 2024, acknowledging the persistent market volatility and macroeconomic headwinds. The company expects a sequential decline in EBITDA in Q3 due to lower realized steel prices and a soft demand environment. Nevertheless, the strategic projects, which are anticipated to contribute significantly to earnings growth from 2025 onwards, should offer a positive long-term outlook for investors. Shifting perspective to ArcelorMittal's financial position, I highlight that the company's balance sheet remained robust, with net debt of about $5.2 billion at the end of Q2 (gross debt of $11.1bn and cash and cash equivalents of $5.9bn as of June 30, 2024). Looking to the end of 2024, management has projected net debt to remain USD 5 billion by the end of 2024, which suggests a net debt/EBITDA ratio of 0.8x. In my view, this provides the company with a solid foundation to continue its strategic investments and share buyback programs, with 28% of its 85 million share repurchase plan still remaining. ... With Steel Prices Likely Bottoming Steel prices have faced significant downward pressure in 2024 due to several key factors: Firstly, I highlight surging Chinese exports as a key headwind: China’s export run rates have reached near-record highs, between 80-100 million tons annually, contributing to an oversupply in the global market. The Chinese government has largely refrained from substantial intervention, maintaining only minor production cuts aimed at emission reduction. This has led to increased competition and lower prices across global markets. Secondly, I point to a weak macroeconomic environment, characterized by slow growth in key regions like the EU and the US, which has contributed to reduced steel demand. Thirdly, falling input costs, such as those for raw materials like iron ore and coking coal, have also put pressure on steel prices. However, the current low steel prices, driven by high Chinese exports, weak global demand, and macroeconomic uncertainties, appear to have reached a cyclical trough, as indicated by recent stabilization efforts in key markets such as Europe and the U.S. Additionally, protective trade measures and anticipated production cuts, especially in China, suggest that the supply-demand imbalance may start to correct. With an expected rebound in the steel market in mind, which should play out over the next few quarters, I argue that ArcelorMittal is well-positioned to capitalize on a potential upturn. Notably, ArcelorMittal has made substantial progress in executing its strategic capex plan, with more than 75% of these investments completed by the end of 2024. This includes significant expansion projects in Brazil and India, which are expected to drive a 25% increase in EBITDA over the next few years. The focus on markets with high growth potential and protective trade policies, like Brazil, and partnerships in India may contribute substantially to free cash flow and overall profitability Shareholder Friendly Capital Allocation ArcelorMittal maintains a strategic balance between capital returns and growth investments. The company has spent approximately USD 11 billion on share buybacks and dividends since 2021 while investing around USD 7 billion in strategic capital expenditures and M&A over the past 2-3 years. This balanced approach allows ArcelorMittal to continue funding its growth pipeline, which includes major projects in Brazil and India, without compromising its ability to return capital to shareholders. ArcelorMittal has been actively repurchasing its shares as part of its commitment to returning capital to shareholders. As of Q2 data, the company has completed approximately 72% of its 85 million share buyback program, with 28% remaining. Alongside share repurchases, ArcelorMittal also maintains a dividend yield of around 2%. Valuation: Set TP At $44 Per Share For ArcelorMittal, I propose using the residual earnings valuation framework, which I believe is well-suited for valuing mature, industrial businesses. That said, I have structured this framework around the analyst consensus forecast for EPS through 2026 (based on data from Bloomberg), a WACC of 11%, and a terminal value growth rate of zero, reflecting the industry's maturity. Regarding the cost of equity, while ArcelorMittal's effective cost of equity may be lower than 11%, I believe adjusting it upward to 10% more accurately captures the company's cyclical exposure and the competitive dynamics of the steel market. Under these assumptions, my valuation suggests a fair share price of $44 (MT reference), indicating an upside potential of approximately 83% based on the company's accounting fundamentals.  Refinitiv; Company Financials; Author's EPS Estimates and Calculation For investors exploring different scenarios, I have provided a sensitivity analysis that evaluates various combinations of WACC and terminal value growth rates. In this analysis, red cells represent overvaluation compared to ArcelorMittal's current valuation, while green cells represent undervaluation. Importantly, every tested combination indicates that the stock is undervalued.  Refinitiv; Company Financials; Author's EPS Estimates and Calculation Risks To My Thesis While ArcelorMittal stock looks cheap and the steel market may have bottomed at a cyclical low, I highlight a few risks to my bull thesis: Firstly, investors should note that ongoing economic uncertainty, oversupply from China, or weak demand in key markets could keep steel prices depressed for a prolonged period of time. Secondly, I point out that lingering recession risks in key regions or geopolitical tensions could disrupt demand and supply chains, impacting steel business' revenue and profitability. Investor Takeaway  ArcelorMittal is navigating a challenging macro backdrop quite well: The company demonstrated resilience in Q2 2024, achieving an EBITDA of $1.5 billion despite lower steel prices across all divisions. While management anticipates further EBITDA declines in Q3 due to ongoing price pressures and weak demand, steel prices seem to have stabilized at a cyclical low. Market correction indicators, such as trade protections and potential production cuts in China, could position ArcelorMittal for a recovery. The company’s strategic capex progress, especially in key growth markets like Brazil and India, is projected to drive a 25% increase in EBITDA over the coming years, supporting a favorable long-term outlook. Given these factors, I consider ArcelorMittal shares undervalued, with a fair implied value around $44/share, suggesting approximately 83% upside based on a residual earnings model.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.26.4","shortVersion":"4.26.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2464322762"}