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On Thursday, Goldman Sachs analyst Matt Greene upgraded shares of global steel giant ArcelorMittal (NYSE:MT:NA) (NYSE: MT) from Neutral to Buy, setting a new price target of EUR 29.00, up from EUR 26.10. The upgrade comes for the $20 billion market cap company, which currently trades at attractive valuation multiples with a P/E ratio of 15.3x and a notably low Price/Book ratio of 0.37x. Greene cited a combination of factors anticipated to bolster the company's financial performance, including declining prices for iron ore and metallurgical coal, which are expected to support costs and aid steel margins even if steel prices do not rise.
The upgrade comes amid expectations from Goldman Sachs' Commodities team of an oversupply in key raw materials, which should reduce ArcelorMittal's production costs. This cost support is believed to be beneficial for the company's steel spreads and margins, though InvestingPro data shows current gross profit margins are at 9.46%. Additionally, potential reductions in steel exports from China and increasing political pressure for safeguard measures in major markets such as the European Union, India, and Brazil could provide further price support. These measures are expected to potentially improve ArcelorMittal's utilization rates by replacing imports with domestic production, thereby lowering unit costs for the company, which generated $62.4 billion in revenue over the last twelve months.
ArcelorMittal's broad exposure to the European market is seen as an advantage, especially with the announced infrastructure and defense plans in Europe, alongside interest rate cuts and a pickup in industrial demand. These developments could contribute to further upside for the company, although Goldman Sachs notes this is a longer-term view as structural challenges like high energy prices need to be addressed.
Despite the possibility of macroeconomic uncertainty exerting downward pressure on ArcelorMittal's stock in the near term, Goldman Sachs believes the current stock levels present an attractive opportunity for investors with a view extending beyond 12 months. This view aligns with InvestingPro analysis, which indicates the stock is currently undervalued. The firm's assessment suggests a favorable outlook for ArcelorMittal's financial health and market position in the forthcoming period, with analysts expecting net income growth this year. For deeper insights into ArcelorMittal's valuation and 12+ additional exclusive ProTips, visit the company's comprehensive Pro Research Report, available on InvestingPro.
In other recent news, ArcelorMittal has announced a new share buyback program, aiming to repurchase up to 10% of its shares, approximately 85.3 million, following the completion of a previous program. BofA Securities maintained a Buy rating on ArcelorMittal, highlighting the company's balanced approach to growth and capital returns. However, Jefferies downgraded ArcelorMittal's stock from a Buy to a Hold, citing a significant rally in shares and adjusted its price target to EUR 33.00. CFRA also adjusted its price target for ArcelorMittal to EUR 29.00, maintaining a Hold rating and noting the company's strategic growth projects and potential market challenges.
JPMorgan raised its price target to EUR 30.50, maintaining a Neutral rating, and expressed concerns about the broader European steel industry's outlook due to global demand and Chinese exports. Meanwhile, South Africa is close to finalizing a funding agreement to support ArcelorMittal's local division, with a proposed initial package of 500 million rand to secure operations. The government is also encouraging ArcelorMittal South Africa Ltd. to consider offers for two mills it plans to close. These developments reflect ArcelorMittal's ongoing efforts to navigate a complex market environment while focusing on shareholder returns and strategic growth.
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