What Makes ArcelorMittal (MT) Stock a Solid Choice Right Now
ArcelorMittal (MT) benefits from a strong rebound in demand, cost-reduction initiatives and higher steel prices.
Shares of ArcelorMittal MT have popped around 41% over the past six months. The steel giant is benefiting from improved market conditions and higher steel prices. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
Let’s delve deeper into the factors that make this Zacks Rank #1 (Strong Buy) stock an attractive choice for investors right now.
Shares of ArcelorMittal have shot up 171.6% over the past year against the 130.4% rise of its industry. It has also outperformed the S&P 500’s roughly 28.6% rise over the same period.
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Over the past two months, the Zacks Consensus Estimate for ArcelorMittal for 2021 has increased around 53.4%. The consensus estimate for third-quarter 2021 has also been revised 47.9% upward over the same time frame. The favorable estimate revisions instill investor confidence in the stock.
Solid Growth Prospects
The Zacks Consensus Estimate for earnings for 2021 for ArcelorMittal is currently pegged at $12.56, reflecting an expected year-over-year growth of 1,731.2%. Moreover, earnings are expected to register 3,186.7% growth in third-quarter 2021.
Valuation Looks Attractive
ArcelorMittal’s shares are currently trading at a level that is lower than the industry average, suggesting that the stock still has upside potential.
Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value steel stocks, ArcelorMittal is currently trading at trailing 12-month EV/EBITDA multiple of 3.42, cheaper compared with the industry average of 6.05.
ArcelorMittal is witnessing a strong rebound in demand, especially in automotive, following the easing of lockdown measures. The company, in its second-quarter call, raised its outlook for global apparent steel consumption (“ASC”) for 2021 as it expects demand to further improve in the second half. It now envisions ASC to increase 7.5-8.5% in 2021, up from its earlier growth expectation of 4.5-5.5%. A favorable supply demand balance and a low inventory environment are supporting higher utilization levels and healthy steel spreads, the company noted.
The company remains focused on maintaining a competitive cost advantage and strategically growing through high-return projects in high-growth markets. It also intends to leverage existing infrastructure to develop its iron-ore resources, consistently return cash to shareholders through a defined capital return policy as well as lead on sustainable development.
Moreover, the company is expanding its steel-making capacity and remains focused on shifting to high-added-value products. Its cost-reduction initiatives will also support profitability.
ArcelorMittal is executing a new $1 billion fixed cost reduction program. The program includes actions to improve productivity and maintenance efficiency, and rationalize support functions. ArcelorMittal expects to achieve the majority of the savings in 2021. Roughly 40% of these savings are expected to be achieved through productivity.
The company should also benefit from higher steel prices. Its average steel selling prices went up around 61% year over year in the second quarter of 2021 and boosted bottom line. Strong end-market demand, tight supply and higher raw material costs are driving steel prices.
Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Nucor Corporation NUE, Olympic Steel, Inc. ZEUS and Schnitzer Steel Industries, Inc. SCHN, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nucor has an expected earnings growth rate of 494% for the current year. The company’s shares have shot up around 160% in the past year.
Olympic Steel has a projected earnings growth rate of 2,362.2% for the current year. The company’s shares have surged around 155% in a year.
Schnitzer Steel has an expected earnings growth rate of 1,253.5% for the current fiscal year. The stock has also surged around 146% over a year.
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