Jefferies sees Acerinox as stable amid EU headwinds, initiates Hold rating

On Wednesday, Jefferies initiated coverage on Acerinox SA (ACX:SM) (OTC: OTC:ANIOY), a prominent player in the stainless steel industry with a market capitalization of $2.47 billion, assigning a "Hold" rating to the company's shares. The firm has set a price target of EUR10.50 on the stock.

This initiation comes as the company exhibits a robust product mix and significant exposure to the United States market. According to InvestingPro analysis, the stock is currently trading near its Fair Value, with 8 additional key insights available to subscribers.

The research firm acknowledges Acerinox (BME:ACX)'s strong balance sheet, noting an estimated standalone net debt to EBITDA ratio of around 1.0x for the year 2024. Supporting this view, InvestingPro data shows a healthy current ratio of 2.21 and EBITDA of $509 million, with liquid assets exceeding short-term obligations. The company's financial position suggests a capacity to manage debt effectively while maintaining operational performance.

Despite the favorable view of Acerinox's business fundamentals, Jefferies expresses caution due to the difficult economic environment in Europe, which is impacting the earnings of European stainless steel companies. The analyst points out that the challenging macroeconomic backdrop in the European Union is a significant factor to consider when assessing the company's near-term prospects. Nevertheless, the company maintains a notable dividend yield of 4.01% and has consistently paid dividends for 40 consecutive years.

Acerinox's stock has demonstrated lower volatility compared to its peers, with a 6% decline over the last twelve months (LTM), while the industry average stands at a 17% decrease in the same period. This relative stability in its share price is highlighted as an indication of the company's solid business foundation.

Looking ahead, Jefferies suggests that Acerinox is well-positioned to capitalize on potential opportunities that may arise from a shift in macroeconomic conditions. The firm also notes the possibility of Acerinox realizing approximately $70 million per year in synergies following its consolidation with Haynes, which could contribute positively to the company's value proposition for investors. With an attractive EV/EBITDA ratio of 6.11x, detailed financial analysis and additional insights are available through InvestingPro's comprehensive research reports.

In other recent news, Acerinox reported a solid third-quarter performance with an EBITDA of €114 million, bringing the year-to-date figure to €350 million, despite facing operational challenges such as a five-month strike at the Acerinox Europa plant. The company has announced strategic moves including the sale of Bahru Stainless and the acquisition of Haynes International (NASDAQ:HAYN), both expected to be completed in late 2024. According to analysts, the fourth quarter EBITDA is anticipated to be influenced by the Bahru sale but likely to be lower than the third quarter due to seasonal slowdowns.

In addition, Acerinox is implementing a new business model for Acerinox Europa to improve flexibility and market adaptation, and ongoing expansion plans in North America for stainless steel and VDM metals are progressing on schedule. Despite a 20% decline in stainless steel consumption in 2022 and weak demand in Europe and the U.S., the company maintains a strategic focus on maintaining base prices and is confident in the U.S. market's robustness post-elections, with anticipated demand recovery.

These are recent developments that highlight Acerinox's resilience in a challenging market environment, underscored by a stable EBITDA margin of 9% in the third quarter. The company is also negotiating supply agreements for the upcoming year, aiming to retain customer confidence through improved supply reliability.

With the upcoming acquisition of Haynes International, Acerinox aims to strengthen its position in the high-performance alloys market, particularly in the aerospace sector.

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