We recently upgraded Korea-based, POSCO (PKX) from Underperform to a Neutral recommendation. The steel maker ranks third in the world on the basis of output.
The company has been producing quality steel and steel products since its inception in 1968. The company works through 202 companies with roughly 143 companies engaged in steel related businesses.
Korea has been POSCO’s major operating field, with the company making every effort to expand its foothold in the region. Not just this, the company is also keen on expanding its operations in the fast growing markets and industries worldwide. Crude steel production reached a whooping 37.3 million tons in 2011 while export ratio hovered around 39%.
Moreover, increasing proportion of value-added products in its product mix, such as cold-rolled steel, automotive steel plates and electric steel sheets, works in favour of the company.
Despite having bright long-term growth prospects, POSCO’s near-term weaknesses forced us to restrict the upgradation to a Neutral rating only.
POSCO reported lacklustre results in the first quarter 2012. Net income in the quarter plummeted 41% as flat revenue growth together with weak margins due to higher raw material costs and soft steel market pulled down the earnings.
Moreover, the outlook for the steel industry gets marred by occurrences taking place globally such as the financial crisis in the European region, political unrest in other parts of the world and economic uncertainties in China seem to restrict demand growth.
We also expect fluctuations in demand for steel products to continue in the near future, which may adversely affect the company’s businesses, results of operations or financial condition. To add to the peril, mounting competitive pressure from steel giants including Arcelor Mittal (MT) and Nippon Steel Corp is adding to the concern.
The Zacks Consensus Estimates for the fiscal years 2012 and 2013 stand at $7.61 and $8.66 per ADR, respectively. These reflect a year-over-year decline of 29.14% in 2012 and growth of 13.80% in 2013.
ARCELOR MITTAL (MT): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment