On Mar 4, we issued an updated research report on
). While growth opportunities arising from acquisitions and
emerging markets as well as the company's efforts to cut debt and
reduce costs are encouraging, we remain concerned about weak
steel industry fundamentals and a tough pricing environment.
The steel giant posted narrower loss in the fourth quarter of
2013, reported on Feb 7, thanks to lower impairment charges.
Adjusted loss, however, was higher than the Zacks Consensus
Estimate. Revenues rose year over year but missed expectations.
Shipments also rose on a year over year basis in the quarter.
ArcelorMittal, a Zacks Rank #3 (Hold) stock, is expanding its
steel-making capacity and raw materials self-sufficiency through
a combination of brownfield growth, new greenfield projects and
acquisition opportunities, mainly in emerging markets.
ArcelorMittal is also highly focused on reducing debt, lowering
costs and improving efficiency. The company maintains its $15
billion medium-term net debt target. On the cost-saving front,
ArcelorMittal is progressing with a new $3 billion cost
optimization program that mostly focuses on variable cost
reductions in its plants. The company achieved cost savings of
$1.1 billion on an annualized basis in 2013 and expects $2
billion in savings by the end of 2014.
We are also encouraged by the company's expansion initiatives in
the mining segment. ArcelorMittal is progressing with its mining
growth projects and is on track to boost iron ore production
capacity in its own mines to 84 million tons by 2015. A second
phase expansion in its operations in Liberia is currently
underway with expected completion by end-2015.
However, ArcelorMittal continues to grapple with challenging
economic conditions in Europe. It is also exposed to volatility
in steel pricing and tough competition.
Increased domestic imports, production ramp ups by peers and
increased Chinese production have led to oversupply in the steel
industry, which in turn, is causing a decline in steel prices.
Moreover, demand for steel remains weak in Europe. Steel demand
fell in Europe in 2013 is currently roughly 30% below pre-crisis
levels. ArcelorMittal has closed some its operations in the
region, given slack demand and the weak European economy.
Recovery in the demand environment is expected to be sluggish in
the region this year.
Key Picks from the Sector
Other companies in the steel and related industries with
favorable Zacks Rank are
AK Steel Holding Corp.
United States Steel Corp.
Worthington Industries, Inc.
), all with a Zacks Rank #2 (Buy).
AK STEEL HLDG (AKS): Free Stock Analysis
ARCELOR MITTAL (MT): Free Stock Analysis
WORTHINGTON IND (WOR): Free Stock Analysis
UTD STATES STL (X): Free Stock Analysis
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