25% Gain Possible For ArcelorMittal’s Stock?
Comparing the trend in ArcelorMittal’s stock (NYSE: MT) over recent months and its trajectory during and after the great recession of 2008, we believe the stock can potentially gain close to 25% from its current level of $12, to reach $15 post the coronavirus crisis. A detailed comparison of ArcelorMittal’s performance against the S&P 500 is available in our interactive dashboard analysis, How Much Could ArcelorMittal Stock Gain Post-Covid?
The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19 with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. ArcelorMittal’s stock lost 54% of its value (vs. about 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6th, when an increasing number of coronavirus cases outside China fueled concerns of a global economic slowdown. Notably though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 55% over recent weeks (vs. about 45% gain in the S&P 500) to its current level of $12.
Reason Behind ArcelorMittal’s Stock Decline
The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. The steel demand from industry players affects global steel price levels, in turn impacting the company’s price realization for its products. Lower demand from construction and automobile players, has led to a drop in global steel prices recently, which had already seen a drop due to the US-China trade war. Additionally, with the outbreak and spread of coronavirus expected to lead to further slowdown in economic activity and demand, steel prices are expected to remain under pressure in the near term. This was confirmed to a certain extent in the Q1 2020 results, where we saw a 23% decline in ArcelorMittal’s revenues, while it also reported a loss of $1.11 per share compared to a profit of $0.41 per share in Q1 2019.
ArcelorMittal Witnessed Something Similar In 2008
We see ArcelorMittal stock declined from levels of around $192 in October 2007 (the pre-crisis peak) to roughly $44 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 77% of its value from the pre-crisis peak. This marked a larger drop than the broader S&P, which fell by about 51%. However, ArcelorMittal recovered strongly post the 2008 crisis to about $123 in early 2010 – rising by a large 177% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
Will ArcelorMittal Stock Recover Similarly From The Current Crisis?
Keeping in mind the fact that ArcelorMittal stock fell over 54% from the level as on February 19 to the low on March 23 compared to the 77% decline during the 2008 recession, we believe it has the potential to bounce back by close to 100% from its March 2020 low to reach about $15 post crisis. This marks a partial recovery to the $17 level MT’s stock was at before the crisis. The stock has already recovered to $12 as on 8th June 2020, with a further upside of 25% from current level possible post crisis. Based on ArcelorMittal Valuation by Trefis, the fair price estimate of MT’s stock comes to $15 per share.
For further insight, check out how close rival US Steel’s stock has been hammered despite revenue growth.
Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. The complete set of coronavirus impact and timing analyses is available here.
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