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ArcelorMittal (MT)

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We are maintaining our Underperform recommendation on ArcelorMittal (MT) following our assessment of its second-quarter 2012 results. Earnings beat the Zacks Consensus Estimate while revenues fell year over year and missed the forecast. ArcelorMittal remains affected by the challenging economic conditions in Europe.

The company is also exposed to volatility in steel pricing and tough competition, and has significant debt which is almost equal to its market capitalization. Steel industry oversupply due to imports and Chinese production has pressured prices and might further lead to price declines. Moreover, weakness in end markets due to macroeconomic uncertainty is another area of concern.

Our long-term Underperform recommendation on the stock indicates that it will perform below the broader market. Our price target of $15 is based on 13.2x our fiscal 2012 earnings estimate.

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