Headquartered in Rio de Janeiro, Brazil, the world’s largest producer of iron ore, pellets and nickel, Vale S.A. (VALE) is no stranger to controversy. In March, it concluded the sale of its New Caledonia nickel mining assets to a consortium that included commodity trader Trafigura, opening the way for a production restart at the site, which had been hit by political unrest.
The stock has gained 15.8% over the past three months to close yesterday’s trading session at $20.14.
VALE’s long-term performance is also impressive. It has returned 43.6% over the past three years. Furthermore, its revenue has grown at a 31% CAGR over the past three years, while its EPS grew at a 48.4% CAGR. On April 19, the company signed an investment agreement with Mitsui & Co., Ltd. (MITSY) for the acquisition of MITSY´s interest in the Moatize coal mine and in the Nacala Logistics Corridor. So, we think VALE is well positioned to gain in the coming months as construction activities resume with the reopening of the major economies.
(Note that VALE is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn More here.)
Here’s what we think could influence VALE’s performance in the near term:
Increasing Demand for Materials
Construction activities have been gaining pace as major economies reopen after remaining closed for several months due to the COVID-19 pandemic. According to Construction Enquirer, latest figures for output in March 2021 revealed that construction grew nearly 6%. Consequently, the demand for several commodities, including iron ore and steel, are on the rise, which positions VALE well to grow its revenues significantly in the near-term. That’s because the company produces iron ore and iron ore pellets, which are key raw materials for making steel, among other industrial end products.
VALE’s net operating revenue climbed 81.4% year-over-year to $12.65 million for its fiscal first quarter, ended March 31. Its operating income for the quarter increased 276% year-over-year to $7.38 million. Its EPS came in at $1.09 compared to $0.05 in the prior-year period. The company’s iron ore production was 68.05 metric ton (Mt) in the quarter, up 14.2% year-over-year. Its production of finished nickel ex-VNC was 48.4 Kt, which represents a 6.8% year-over-year rise.
In terms of forward non-GAAP P/E ratio, VALE’s 4.70x is 71.5% lower than the 16.52x industry average. Its 3x forward EV/EBITDA is 65.6% is lower than the 8.73x industry average. The stock’s 2.15X forward Price-to-Book ratio is also lower than the 2.48x industry average.
Favorable Analyst Estimates
Analysts expect VALE’s revenue to increase 104.1% for the current quarter, ending June 30, 2021, 50.4% for the quarter ending September 30, 2021 and 41.8% in fiscal year 2021. The company’s EPS is expected to grow 439.1% in the current quarter, 115.3% for the quarter ending September 30, 2021 and 335.5% in fiscal year 2021. Also, its EPS is expected to grow at a 34% rate per annum over the next five years.
POWR Ratings Show Promise
VALE has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, VALE has an A grade for Growth, consistent with analysts’ expectations that its revenue and EPS will increase.
The stock has an A grade for Quality also. This is in sync with its 57.5% trailing-12-month gross profit margin, which is higher than the 29% industry average. It has a B grade for Value, consistent with its lower-than-industry valuation ratios.
It has a B grade for Momentum. This is justified given its 40.8% gains over the past six months and 15.8% returns over the past three months.
If you’re looking for other top-rated stocks in the Industrial – Metals industry, with an Overall POWR Rating of A or B, you can access them here.
VALE gained 124.3% over the past year leveraging its diverse portfolio of products and services. In addition to mining, it also works with logistics–railways, ports and steel making, among others. The company seems to be reasonably valued given its solid growth prospects in the coming quarters. So, we think it is wise to bet on the stock now.
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VALE shares were trading at $20.50 per share on Wednesday morning, up $0.36 (+1.79%). Year-to-date, VALE has gained 27.69%, versus a 12.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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