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On Thursday, JPMorgan raised its price target on ArcelorMittal (NYSE:MT:NA) (NYSE: MT) stock to €30.50 from €23.50, while maintaining a Neutral rating. The stock, which has seen a significant 35.4% gain over the past six months despite a recent 10% decline last week, remains undervalued according to InvestingPro analysis. The adjustment comes amid concerns about the European Steel industry’s outlook, influenced by a combination of factors including Chinese exports and weakening global demand.
The research firm’s analysts, led by Dominic O’Kane, expressed a cautious stance on the sector, anticipating global steel prices to remain subdued. They pointed to approximately 100 million tons of steel exports from China and a dimming global demand forecast as primary reasons for the expected price depression. With a gross profit margin of 9.46% and an EBITDA of $5.6 billion in the last twelve months, ArcelorMittal maintains its position as a prominent player in the Metals & Mining industry. JPMorgan’s proprietary supply and demand forecasts suggest an oversupply in the market, which could lead to sustained weak profitability for the industry through 2025.
The analysts also highlighted potential geopolitical risks that could further impact European steel manufacturers. With the upcoming US elections, there is a possibility of increased trade protectionism that could disadvantage companies heavily reliant on exports to the US. According to JPMorgan, ArcelorMittal is the most exposed within their coverage to such risks.
The firm’s note also touched on the management’s commitment to shareholder returns. They indicated that this commitment could become a more significant point of discussion as the industry navigates through an extended period of lower steel prices. The company currently offers a dividend yield of 1.39% and has raised its dividend for four consecutive years, according to InvestingPro, which offers 12 additional investment tips for ArcelorMittal. Additionally, the ambitions for decarbonization were mentioned as a factor that could constrain organic free cash flow (FCF) generation for the company.
JPMorgan’s revised price target reflects a nuanced view of ArcelorMittal’s prospects, considering both the challenging industry conditions and the company’s strategies to manage shareholder value amidst these headwinds. For a comprehensive analysis of ArcelorMittal’s financial health (rated as GOOD by InvestingPro), including detailed valuation metrics and growth prospects, investors can access the full Pro Research Report available on InvestingPro.
In other recent news, ArcelorMittal reported a strong financial performance for the fourth quarter, with an EBITDA of $1.65 billion, surpassing analysts’ expectations. This was largely driven by robust volumes in the iron ore division, although the steel division experienced a decline in EBITDA. Goldman Sachs responded by raising its price target for ArcelorMittal to EUR26.10, while maintaining a Neutral rating. Similarly, JPMorgan increased its price target to EUR23.50, also keeping a Neutral stance. Morgan Stanley (NYSE:MS), however, downgraded ArcelorMittal’s stock from Overweight to Equal-weight, citing a rally that outpaced expected earnings impacts.
ArcelorMittal’s reported Free Cash Flow for the year was $260 million, with a 10% increase in its dividend to $0.55 per share. The company anticipates a rise in apparent steel demand in 2025, with growth expectations in Europe, the USA, and India. Meanwhile, European steel stocks, including ArcelorMittal, saw a boost from Germany’s infrastructure spending plans and China’s pledge to cut steel output. However, the broader market faced pressure due to escalating global trade tensions, impacting sectors like automotive and banking. Investors are closely watching these developments to assess their potential impact on ArcelorMittal’s future performance.
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