By Michael Elkins
Bank of America upgraded ArcelorMittal (AS: MT ) (NYSE: MT ) to a Buy rating (From Neutral) and raised their price target on the stock to €31 (from €30) (€1=$1.0872) following a recent share price decline. The decline means that shares now trade at deep value, which makes for an interesting entry point for the stock.
Analysts wrote in a note, “MT's valuation is relatively low compared to its history. We think this discount is an attractive entry point as MT has a low level of net debt relative to its own history and a capital allocation policy to direct 50% of FCF to shareholder returns (dividends & buybacks). We also think earnings expectations have troughed and are pending upgrade given the surprisingly resilient steel cycle into 2023.”
Other than valuation, Bank of America’s main reasons for their bullish view on the steel company include troughed earnings estimates and share buybacks. Since the end of 2020, MT has reduced the number of shares in issue by >20%.
Earnings forecasts and expectations have started to trend higher. Earnings forecasts tend to have a positive correlation with share price performance. Bank of America increase their forecasted Underlying EBITDA estimates for ArcelorMittal by 30%/13%/9% for FY23/24/25E respectively. Bank of America’s $8 billion 2023 EBITDA estimate is now above consensus ($7.1B), despite forecasting falling steel prices from current levels.
Shares of MT are up 2.43% in pre-market trading on Thursday.
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