Deutsche Bank analyst Bastian Synagowitz upgraded Arcelor Mittal NY MT to Buy from Hold and raised the price target from $29 to $31.
Per the analyst, 75% of Arcelor Mittal’s steel earnings are tied into attractive markets that trade at a premium to the company.
Despite this, valuation multiples of 3-4x EV/EBITDA are (wrongly) held hostage by the European business (literally priced at zero), the analyst writes.
Synagowitz writes, weaker developed markets and a slowing Chinese sector have led to a significant correction in Arcelor Mittal’s shares.
The analyst projects a ‘tough’ second half of the year, with forecasts slightly below market expectations, but the physical cycle may be nearing its bottom.
ArcelorMittal’s solid balance sheet and improved portfolio quality provide downside protection, with breakeven free cash flow (FCF) achievable even in a weak scenario, Synagowitz adds.
In addition, the analyst underscored the fact that 75% of ArcelorMittal’s steel earnings come from attractive markets, and the company’s growth pipeline suggests 25% EBITDA growth over the next 3-4 years.
From a fundamental point of view, a low valuation, a solid balance sheet and the ability to defend FCF at the bottom of the cycle should provide support, the analyst writes.
Although the company’s valuation multiples are low due to European market concerns, with significant upside potential, a midterm target price of approximately EUR 60/$31 per share is plausible, Synagowitz highlights.
Price Action: MT shares are trading lower by 0.4% to $23.38 at the last check Wednesday.
Photo by christopher-burns- for Unsplash
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