Is ArcelorMittal Stock A Buy Following Q4 Results?

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Arcelor Mittal

ArcelorMittal (NYSE:MT) posted a better-than-expected set of Q4 2022 results despite price erosion and weaker year-over-year shipments. Although revenue was down by almost 19% versus last year to $16.9 billion, adjusted earnings came in ahead of estimates at $1.37 per share, compared to $3.72 in Q4 2021. Total steel shipments stood at 12.6 million metric tons, marking a  decline of almost 20% versus the last year due to the impact of destocking and the war in Ukraine. Average steel prices were also about 4% lower compared to last year.

So what’s the outlook like for the company? Although we believe that steel prices are likely to remain below average levels seen in early 2022, there are some trends that could help ArcelorMittal. Firstly,  ArcelorMittal expects its steel shipments to rise by 5% versus 2022. While this will be partly driven by growing consumption, with overall consumption excluding China projected to grow at 2% to 3%, it will also be driven by restocking. Production costs are likely to move lower, as energy prices cool off, particularly in Europe, with overall input price inflation showing signs of easing. The macro-environment also doesn’t appear to be as bad as previously feared. The U.S. Fed has eased the pace of its interest rate hikes given slowing inflation. This could also bode well for the broader economy and commodity players such as ArcelorMittal. China – the top steel consumer – has scrapped its stringent zero-Covid policy and the big reopening of the Chinese economy should result in rising demand, supporting global steel prices. Automotive sales could also pick up in 2023, driven by higher component and semiconductor supply and this could also benefit steel producers such as ArcelorMittal.

We remain positive on U.S. ArcelorMittal stock with a $35 price estimate, which is about 10% ahead of the current market price. The company has cut its debt, with net debt declining from about $10 billion in 2018 to under $4 billion at the end of the last quarter, which should be manageable even in the current rising interest rate environment. While the stock trades at about 10x consensus 2023 earnings (which are likely to be depressed) it trades at just about 6x 2024 earnings. See our analysis of ArcelorMittal Valuation: Is MT Stock Expensive Or Cheap? for a closer look at what’s driving our price estimate.

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 Returns Feb 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MT Return -1% 17% 40%
 S&P 500 Return 2% 8% 85%
 Trefis Multi-Strategy Portfolio 2% 13% 257%

[1] Month-to-date and year-to-date as of 2/16/2023
[2] Cumulative total returns since the end of 2016

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