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On Apr 26, Zacks Investment Research downgraded steel giant ArcelorMittal (MT - Analyst Report) to a Zacks Rank #5 (Strong Sell).

Why Downgraded?

ArcelorMittal, on Feb 7, posted a net loss of $1.2 billion or 69 cents per share for the fourth quarter of 2013, narrower than the net loss of $3.8 billion or $2.47 per share a year ago, thanks to lower impairment charges. Adjusted loss, however, was 31 cents per share, wider than the Zacks Consensus Estimate of a loss of 16 cents per share.

ArcelorMittal has delivered negative earnings surprises in 3 of the last 4 quarters, with an average negative surprise of 233.76%.

While the company's efforts to cut debt, reduce costs and increase steel-making capacity are encouraging, weak steel industry fundamentals and a tough pricing environment remain concerns.

ArcelorMittal remained exposed to challenging conditions in Europe, volatility in steel pricing and tough competition. Production ramp-ups by peers, increased domestic imports and an increased Chinese production have led to oversupply in the steel industry, which in turn, is causing a decline in steel prices.

Moreover, demand for steel is about 30% below pre-crisis levels in Europe. ArcelorMittal has closed some its operations in the region, given slack demand and the weak European economy. Recovery in the demand environment in the region is expected to be sluggish this year.

ArcelorMittal is still seeing soft demand across some of the key end-use markets. The company's Flat Carbon Europe division remains under pressure due to lower average steel selling prices.

Considering the challenging economic conditions, ArcelorMittal reduced its annual dividend payout in 2013. The company intends not to increase the dividend or ramp-up any major steel growth capital expenditure until the medium-term $15 billion net debt target has been achieved and market conditions improve in 2014.

For 2014, the Zacks Consensus Estimate for ArcelorMittal has gone down roughly 17.2% to 77 cents per share since fourth-quarter 2013 earnings release. The Zacks Consensus Estimate for 2015 has also declined 15.6% to $1.35 per share.

Other Stocks to Consider

Other stocks in the steel industry with a favorable Zacks Rank are Companhia Siderurgica Nacional (SID - Analyst Report), Gerdau S.A. (GGB - Analyst Report) and ThyssenKrupp AG (TYEKF). While Companhia Siderurgica carries a Zacks Rank #1 (Strong Buy), Gerdau and ThyssenKrupp hold a Zacks Rank #2 (Buy).

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