On Nov 13, we reiterated our Neutral recommendation on Vale S.A. (VALE - Analyst Report), based on the company’s initiatives to increase revenues and cut costs. However, the volatile international markets may ruin the results.
Why the Reiteration?
Vale has been attempting to increase its production volumes over the previous quarters. The company in the third quarter 2013 reported improved year-over-year production volumes for most of the commodities. Vale experienced record production volumes of copper, coal, phosphate rock and gold. Gold production soared to 76,000 ounces, gaining 66.2% year over year.
In the third quarter, Vale reported underlying earnings per ADR (American Depositary Receipt) of 72 cents, up 58.8% year over year and 12.9% sequentially. Revenues in the quarter came in at $12.9 billion, registering a hike of 10.8% year over year and 14.5% sequentially.
The company has been attempting to streamline its business to focus more on core competencies. Divesting assets to manage costs has been a priority for the company. In the reported quarter Vale sold 35.9% of its stake in VLI S.A.
However, the company’s international operations expose it to various geopolitical, social as well as macroeconomic risks. Additionally, being a cyclical stock, Vale is largely influenced by economic activities and market movements. Moreover, competitive pricing and the drive to improve quality, product diversity and reliability raise operational costs, impacting company financials.
In the last 30 days, the Zacks Consensus Estimate for Vale has risen 7.7% to $2.23 for 2013 and climbed 5.2% to $2.01 for 2014.
Other Stocks to Consider
Vale currently carries a Zacks Rank #2 (Buy). Other stocks worth a watch in the industry include Alderon Iron Ore Corp. (AXX - Snapshot Report), Cliffs Natural Resources Inc. (CLF - Analyst Report) and Alpha Natural Resources, Inc. (ANR - Snapshot Report). All these carry a Zacks Rank #2.