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We issued an updated research report on South Korean steel producer POSCO (PKX - Free Report) on Jun 21, 2016. The company is one of the largest steel producers in the world in terms of output.
Growth Drivers
Solid Product Portfolio: POSCO’s core operations consist of steel, with a broad product line including hot-rolled and cold-rolled products, plates, wire rods, silicon steel sheets and stainless steel products. In addition, the company has four other major growth businesses including energy, materials, infrastructure and trading. It is working diligently to expand its businesses through organic and inorganic means.
End-Market Diversification: POSCO serves a vast clientele, especially in Korea and other international markets, especially China, Japan, Europe, the Middle East and North America. End-markets include automobile, ship building, home appliances and construction industries.
Growth Targets: Over the long run, POSCO aims to improve its businesses and services. By 2017, the company targets to generate earnings before interest, tax, depreciation and amortization (EBITDA) of KRW 7.5 trillion and achieve debt/EBITDA ratio of 3.1x. Also, it aims to improve its business portfolio, making it more competitive. It anticipates consolidated revenues to be approximately KRW 58.7 trillion in 2016.
Near-term Headwinds
Industry Rivalry: POSCO is exposed to stiff rivalry from other players in the industry. Global steel manufacturers with an expanded production capacity and new market entrants, especially from China and India can give rise to a significant price competition.
Highly Leveraged: POSCO is highly leveraged company with non-current liabilities of approximately KRW 14.8 trillion at the end of first-quarter 2016. Its liability to equity ratio was 77% at end of the quarter. If unchecked, higher debt levels might increase the company’s financial obligations and prove to be detrimental to its profitability.
Other Headwinds: Geographical expansion of business has exposed POSCO to headwinds arising from geopolitical and foreign currency fluctuation risks.
Conclusion
POSCO, with a market capitalization of $14.3 billion, currently carries a Zacks Rank #3 (Hold). We believe the above mentioned pros and cons clearly justify the company’s investment value.
However, there are certain stocks in the steel industry that have been performing better than POSCO and have gained high investment value. They include Ryerson Holding Corporation (RYI - Free Report) , ArcelorMittal (MT - Free Report) and Olympic Steel Inc. (ZEUS - Free Report) . While Ryerson Holding sports a Zacks Rank #1 (Strong Buy), both ArcelorMittal and Olympic Steel carry a Zacks Rank #2 (Buy).
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POSCO's Long-term Potential Solid, Runs Near-Term Risks
We issued an updated research report on South Korean steel producer POSCO (PKX - Free Report) on Jun 21, 2016. The company is one of the largest steel producers in the world in terms of output.
Growth Drivers
Solid Product Portfolio: POSCO’s core operations consist of steel, with a broad product line including hot-rolled and cold-rolled products, plates, wire rods, silicon steel sheets and stainless steel products. In addition, the company has four other major growth businesses including energy, materials, infrastructure and trading. It is working diligently to expand its businesses through organic and inorganic means.
End-Market Diversification: POSCO serves a vast clientele, especially in Korea and other international markets, especially China, Japan, Europe, the Middle East and North America. End-markets include automobile, ship building, home appliances and construction industries.
Growth Targets: Over the long run, POSCO aims to improve its businesses and services. By 2017, the company targets to generate earnings before interest, tax, depreciation and amortization (EBITDA) of KRW 7.5 trillion and achieve debt/EBITDA ratio of 3.1x. Also, it aims to improve its business portfolio, making it more competitive. It anticipates consolidated revenues to be approximately KRW 58.7 trillion in 2016.
Near-term Headwinds
Industry Rivalry: POSCO is exposed to stiff rivalry from other players in the industry. Global steel manufacturers with an expanded production capacity and new market entrants, especially from China and India can give rise to a significant price competition.
Highly Leveraged: POSCO is highly leveraged company with non-current liabilities of approximately KRW 14.8 trillion at the end of first-quarter 2016. Its liability to equity ratio was 77% at end of the quarter. If unchecked, higher debt levels might increase the company’s financial obligations and prove to be detrimental to its profitability.
Other Headwinds: Geographical expansion of business has exposed POSCO to headwinds arising from geopolitical and foreign currency fluctuation risks.
Conclusion
POSCO, with a market capitalization of $14.3 billion, currently carries a Zacks Rank #3 (Hold). We believe the above mentioned pros and cons clearly justify the company’s investment value.
However, there are certain stocks in the steel industry that have been performing better than POSCO and have gained high investment value. They include Ryerson Holding Corporation (RYI - Free Report) , ArcelorMittal (MT - Free Report) and Olympic Steel Inc. (ZEUS - Free Report) . While Ryerson Holding sports a Zacks Rank #1 (Strong Buy), both ArcelorMittal and Olympic Steel carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>