Citi cuts Ternium stock price target to $37, maintains Buy rating

On Monday, Citi analyst Alexander Hacking revised the price target for Ternium S.A. (NYSE:TX) shares, lowering it to $37.00 from the previous $50.00, while still recommending a Buy rating for the stock. The steel manufacturer, currently valued at $5.9 billion, trades at a P/E ratio of 82.8x. The adjustment comes in the wake of North American steel prices not rallying in the fourth quarter as anticipated, and ongoing tariff uncertainty causing hesitation among buyers. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations.

Hacking noted that Ternium’s fourth-quarter EBITDA estimates were decreased to $357 million, down from $368 million in the third quarter, citing sequential performance declines in Mexico and Argentina, despite improvements from Brazil. The company’s last twelve months EBITDA stands at $2.44 billion, with InvestingPro data showing strong financial health metrics, including a healthy current ratio of 2.92 and low debt-to-equity of 0.2. The expected EBITDA for the year 2025 has been reduced by 28% to $2.0 billion. The price target reduction of 26% to $37 per share reflects a valuation of 4.0 times earnings.

The analyst also addressed the impact of potential Mexico tariffs on Ternium, stating that such tariffs would not significantly affect the company directly since 90% of Ternium’s sales are domestic, and Mexico is a flat steel net-importer from the United States. However, there is an indirect demand risk for Ternium through its industrial customer base, with the current uncertainty already leading to subdued demand. Despite these concerns, Hacking’s base case assumes that the USMCA will be renegotiated without significant changes, considering the extensive investments from US automakers and others already in place.

Furthermore, the report mentions that economic conditions in Argentina are showing signs of improvement, which is structurally positive for Ternium, although it may dampen margins in the short term. Despite the price target reduction and the challenges outlined, Citi reaffirms its Buy rating on Ternium, citing the stock’s discounted valuation. The company offers a significant 6% dividend yield, making it attractive for income-focused investors. For a deeper understanding of Ternium’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which includes detailed analysis of the company’s financial health and future potential.

In other recent news, Ternium, a leading steel manufacturer, released its Q3 2024 earnings, reporting an adjusted EBITDA of $368 million and a net income of $93 million. Despite a rise in steel shipments, the company experienced a margin decline due to lower steel prices. Ternium has expressed optimism for future demand, particularly in the automotive and infrastructure sectors, and is investing heavily in renewable energy and expansion projects.

Recent developments include a significant capital expenditure forecast for the coming years, and the commencement of renewable energy initiatives, such as a wind farm in Argentina. Expansion projects in Pesquería are in progress, with a new pickling line and finishing center expected to be operational by 2025-2026.

Moreover, Ternium declared an interim dividend of $0.90 per ADS, totaling $177 million. Analysts noted a decrease in the company’s net cash position to $1.7 billion due to lower EBITDA and increased working capital and CapEx. However, Ternium remains confident about the prospects of Mexico’s industrial demand and the North American steel market.

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