Even with news of a mini stimulus from China, events haven't
been shaping up nicely for the steel industry. Demand for steel
from key developed markets in North America and Europe haven't
picked back up leading to a glut in production.
And since many steel companies have huge fixed costs, this
continued slump in demand has hit the industry pretty hard. Some
have looked to make back some profits on volume, but heavy
competition has kept a lid on prices, leading to the current rough
patch for the industry.
While a number of firms have been impacted by these trends a good
barometer of the overall space is
the world's largest steel producer when looking at sales. MT is
actually up significantly over the past 52 weeks, but its record in
2014 has been quite poor as it is down about 6% in the year-to-date
time frame as concerns have begun to build again over the industry.
MT in Focus
MT is based in Luxembourg but it has a global reach, selling steel
in more than 150 countries around the world. The firm is broken
down into six divisions-- Flat Carbon Americas; Flat Carbon Europe;
Long Carbon Americas and Europe; AACIS; Distribution Solutions; and
Mining-with a broad focus on producing a variety of finished and
semi-finished steel products for customers.
The company, while holding up in the past 52 weeks, still hasn't
recovered from the 2008 collapse, as shares are well below the peak
set during the beginning of that year. The firm has also been
posting horrendous numbers on the earnings front as well,
suggesting that it is still working through some turbulence as it
attempts to get back to profitability.
MT has missed estimates in three of its last four reports,
including some pretty enormous gaps between what the Street was
looking for, and what MT actually delivered. In fact, the average
negative surprise for the past four quarters came in at -233%.
The most recent quarter saw a miss of about 93%, as MT reported a
loss of 31 cents a share compared to analyst predictions of a loss
of 16 cents per share. This performance was actually the second
best one in the last four reports, and it continued the streak of
unprofitability as well, suggesting that the momentum is certainly
against this embattled steel company.
Thanks to these trends, earnings estimates have been slumping for
MT in both the current year and next year time frames. And though
solid growth rates are projected, it is clear that MT has had
trouble meeting estimates before so investors might want to temper
This is especially true as the consensus estimate for the current
year has fallen by about 7% in the past week, while the next year
consensus estimate has tumbled by about 12.5% in the same time
frame. It looks as if the bearish outlook is returning for MT, and
that investors might want to avoid this stock until this trend
Due to this, we currently have a Zacks Rank #5 (Strong Sell) on MT
and expect the recent slump to continue for the company. It is
pretty hard to argue with its recent earnings, and with a report
coming up in about a month, prudent investors might be better
served by staying away from this stock until it can prove it has
turned itself around.
Given the broad weakness in
the steel industry
, there aren't really any favorable picks out there in this space.
In fact, the industry is currently ranked in the bottom 10% of all
industries, and at time of writing, not a single company has a Rank
better than a #3 (Hold).
Due to this, investors will have to look to other segments for
better plays in the broader materials sector. One segment that
looks much better from an earnings estimate perspective is clearly
building products- wood industry
which has a rank in the top 15%.
Two names that stand out in this segment are
Universal Forest Products (
. Both of these companies have 'Buy' Ranks and a solid track record
for beating earnings estimates, suggesting that either one could be
a better play than the troubled ArcelorMittal at this time.
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