We retained our Underperform recommendation on steel
) following its lackluster fourth-quarter 2012 results. Our view
reflects the weak steel pricing environment and softness across
KOBE STEEL-ADR (KBSTY): Get Free Report
ARCELOR MITTAL (MT): Free Stock Analysis
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ArcelorMittal posted a bigger loss in the fourth quarter,
reported on Feb 6, hurt by hefty goodwill impairment charges.
Both revenues and adjusted loss per share missed the Zacks
ArcelorMittal's top line went down 14% in the fourth quarter as
it had to contend with difficult economic environment, especially
in its biggest market Europe. The company expects the weaker
demand environment to sustain in the near and medium term.
ArcelorMittal remains affected by the challenging economic
conditions in Europe. It is also exposed to volatility in steel
pricing and tough competition and has significant debt which is
almost equal to its market capitalization.
Increased domestic imports, production ramp ups by peers and
increased Chinese production have led to oversupply in the
industry, which in turn caused a drop in steel prices. The effect
of price declines was witnessed across all segments in the fourth
quarter and led to a contraction in the top line.
Moreover, demand for steel remains weak. The world economy is
struggling and the recessionary conditions persist in Europe.
Moreover, China's economy remains somewhat sluggish and there is
a demand-supply gap in the U.S. Weak construction activity in the
U.S. and Europe remains another concern. Weakness in key end
markets may hinder ArcelorMittal's earnings power moving ahead.
Also, ArcelorMittal is saddled with high debt. Although the
company is diligently working toward reducing the amount of debt
on its books through divestments, a net debt of roughly $21.8
billion against a market capitalization of around $22.5 billion
ArcelorMittal currently retains a Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
Other steel producers having a favorable Zacks Rank are
Companhia Siderurgica Nacional
Kobe Steel Ltd.
Gibraltar Industries Inc.
). All of them hold a Zacks Rank #2 (Buy).