The steel companies are back in play as the global recovery heats up. ArcelorMittal (MT) is expected to grow earnings by the double digits in both 2011 and 2012. But despite the growth, shares have yet to recover to pre-recession highs and are cheap.
This Zacks #1 Rank (strong buy) is one of the largest steel manufacturers in the world. In 2010, the company represented 8% of the world steel output.
It has an industrial presence in 20 countries and operations in 60 countries. It sells steel to the automotive, construction, household appliances and packaging markets.
Looking for Growth In Asia
Even though the company already has a global reach, the company is positioning itself for expansion in Asia.
On Mar 2, the company announced it was buying a 40% stake in Thailand-based G Steel for $246 million. The deal will give ArcelorMittal a major manufacturing presence in Thailand.
On Mar 7, Mongolia said the company was among 6 global commodities companies short-listed to assist in the development of the Tavan Tolgoi mine, the world’s largest untapped coking coal deposit.
Coking coal is used by steelmakers. A decision on the final bid is expected sometime this summer.
Shipments Rose 22% in 2010
On Feb 8, ArcelorMittal reported fourth quarter and full year results. The company actually missed on the Zacks Consensus Estimate by 5 cents a share. Earnings per share were 14 cents compared to the consensus of 19 cents. It was the first miss in four quarters.
Fourth quarter shipments improved 3% to 21.1 Mt over the third quarter. For the full year shipments rose 22% to 85 Mt.
The company’s own iron ore production climbed 29.7% in 2010 to 48.9 Mt from 37.7 Mt.
Outlook Is Up for 2011
In February, the company was expecting volumes in the first quarter to increase as the global recovery continued and demand rose. However, this was before the Japanese earthquake. It’s unclear how much the earthquake will impact underlying demand.
ArcelorMittal has a lot of automotive customers. Steel demand could be disrupted if the auto sector remains shut down or stalled for an extended period. This story is still developing however.
In February, the company was targeting about a 10% increase in its own iron ore production compared to 2010. It also indicated that it could raise prices as raw material prices rose.
Zacks Consensus Estimates Rise for 2011 and 2012
Analysts have been raising estimates for 2011 and 2012 over the last 3 months.
The 2011 Zacks Consensus Estimate has risen 24 cents to $2.76 per share, with one estimate rising in just the last week.
This is strong earnings growth of 64.2%.
The analysts remain bullish on 2012 as well, with earnings expected to grow another 44% to $3.97 per share.
ArcelorMittal is expected to report first quarter results on Apr 28.
Still a Value Stock
The last time I checked in on ArcelorMittal was in April 2008. The company was just coming off of a massive 2007 where it acquired over $12 billion in operations. Then the Great Recession hit.
The company once again has excellent value characteristics.
It has a forward P/E of 13.4, which is under the S&P 500’s average of 14.4. Its price-to-book is only 0.9, well under the 3.0 level used to determine “value.”
The company also has a price-to-sales ratio of 0.7, which also indicates value as it’s under 1.0.
Shareholders are rewarded with a dividend yielding 1.7%.
Not Yet Back to 2008 Levels
While shares have rallied off the lows, they have yet to retake the highs from the go-go 2007-2008 period.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.
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