On Jan 2, 2014, Zacks Investment Research downgraded Vale S.A. (VALE) to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader equity market.
Why the Downgrade?
Over the last four trailing quarters, Vale witnessed three earnings misses with a negative average surprise of 26.95%. The company reported a loss of 15 cents per share in third-quarter 2014, much below the Zacks Consensus Estimate of earnings of 30 cents, hence dampening investors’ sentiments on the stock.
The results were feeble primarily due to a significant decline in revenues. As a result, share price suffered a steep fall post earnings release. In the last reported quarter, the company’s net operating revenues declined 26.5% year over year and 8.5% sequentially to $9.2 billion.
The earnings estimate revisions of Vale have largely moved downwards in the last month. The company experiences severe threats of market rivalry and hence, runs risks of losing brand value or market share. At the same time, Vale is highly affected by interest, exchange rate and currency fluctuations in its international markets. Moreover, environmental issues such as natural disasters, abnormal rainfall, shortages of skilled workers and destabilizing industrial infrastructure continue to threaten the company’s performance.
Nevertheless, notwithstanding the difficulties, Vale provided a positive outlook toward its business. The company expects that growing demand for steel would augment the sales of its primary component, iron ore, in the upcoming quarters. Besides, positive price changes of several minerals, such as nickel, would support the improvement in earnings and revenue, going forward. However, on grounds of weak profitability, dismal results and downward estimate revisions, we have downgraded the stock to a Zacks Rank #5.
Other Stocks to Consider
Vale currently has a market capitalization of $42.15 billion. Some better-ranked stocks in the industry include Carpenter Technology Corp. (CRS), Amerigo Resources Ltd. (ARREF) and Banro Corporation (BAA). All three stocks currently sport a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free 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