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Will Vale S.A. Beat Q3 Earnings on High Industrial Demand?

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Premium industrial metals & minerals company Vale S.A.VALE is scheduled to report third-quarter 2015 results before the opening bell on Oct 22, 2015. Over the last four quarters, the company generated a negative average earnings surprise of 32.99%. Also, in the preceding quarter, the company's earnings of 19 cents comfortably surpassed the Zacks Consensus Estimate of 4 cents. Let's see how things are shaping up prior to this announcement.

Factors at Play

According to Vale, higher degree of global industrialization is augmenting demand for industrial raw materials, which will likely drive its revenues in the third quarter. The company aims to improve its margins in the second half of 2015 on the back of greater manufacturing economies led by strategic productivity enhancement plans. Moreover, superior yield in the company's N4WS mine and specialized cost-saving schemes are expected to support margin expansion in the third quarter.

Nevertheless, despite the above-mentioned positives, we remain apprehensive about Vale's performance in the quarter under review due to certain headwinds which continue to plague its commercials. As the company's revenues and earnings are highly sensitive to foreign currency fluctuations, the depreciation of Brazilian currency with respect to the U.S. dollar might weigh on its top- and bottom-line results in the to-be-reported quarter.

Further, weak pricing in the mining industry can adversely affect Vale's third-quarter 2015 revenues. Apart from these, cut-throat competition among the mining giants, impact of natural calamities, and issues related to shipment and government regulations might also hurt the stock's performance in the third quarter.

Earnings Whispers

Our proven model does not conclusively show that Vale is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as we will see below.

Zacks ESP: Vale currently has a negative Earnings ESP of 200.00%. This is because the Most Accurate estimate of 15 cents loss is pegged considerably lower than the Zacks Consensus Estimate of 5 cents loss.

Zacks Rank: Vale's Zacks Rank #2, when combined with a -200.00% ESP, makes surprise predictions inconclusive.

Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Koppers Holdings Inc. KOP , with an Earnings ESP of +3.08% and a Zacks Rank #2.

LyondellBasell Industries NV LYB , with an Earnings ESP of +2.77% and a Zacks Rank #3.

Turquoise Hill Resources Ltd TRQ , with an Earnings ESP of +100.00% and a Zacks Rank #3.

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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

VALE SA (VALE): Free Stock Analysis Report

KOPPERS HOLDNGS (KOP): Free Stock Analysis Report

LYONDELLBASEL-A (LYB): Free Stock Analysis Report

TURQUOISE HILL (TRQ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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