Headquartered in Rio de Janeiro, Brazil, Vale S.A. (VALE) is one of the largest iron ore, pellets, and nickel producers. The company has run into several issues over the past few years. On October 5, it halted the production of copper concentrate at its Salobo mine. In June 2021, Judge Vivianne Celia Ferreira Ramos Correa ordered VALE to pay $197,240 in compensation to each of the families of 131 employees killed in the collapse of a mining dam in 2019. Consequently, the stock has lost 39.4% since hitting its 52-week high of $23.18 on June 25, 2021, to close yesterday’s trading session at $13.74.

The stock has gained 27.8% over the past year. Its revenue and EPS have grown at CAGRs of 35.7% and 74.7%, respectively, over the past three years. VALE paid $7.60 billion in first-half dividends, its largest payout since its 2019 dam collapse. Moreover, its top line and bottom line increased in the second quarter. So, the stock’s near-term prospects look promising.

Here are the factors that could shape VALE’s performance in the upcoming months:

Positive Developments

On September 9, VALE launched ‘green briquette,’ developed over almost 20 years, which can reduce by up to 10% of the greenhouse gases (GHG) emissions in the steel production by its steelmaking clients. This solution is part of the company’s strategy to reduce its Scope 3 emissions related to its value chain by 15% by 2035.

VALE announced on September 2 that it had begun using self-driving trucks for the first time at its Carajas complex as it continues to expand its use of driverless technology. In addition, the company signed a Memorandum of Understanding with Ternium S.A. (TX) on August 19 to pursue opportunities to develop steelmaking solutions focused on reducing CO2 emissions.

Solid Financials

For the second quarter ended June 30, 2021, VALE’s net operating revenue came in at $16.68 billion, representing a 121.8% year-over-year rise. The company’s operating income increased 366.1% year-over-year to $9.71 billion. While its net income increased 720.1% year-over-year to $7.54 billion, its EPS came in at $1.49, up 684.2% year-over-year. Also, its adjusted EBITDA increased 227.4% from the same period last year to $11.04 billion.

Favorable Analyst Estimates

Analysts expect VALE’s revenue to increase 51.6% for the quarter ended September 30, 2021, and 48.7% in fiscal 2021. The company’s EPS is expected to increase 125.4% for the quarter ended September 30, 2021, and 447.4% this year. Also, its EPS is expected to grow at a rate of 11.1% per annum over the next five years. Moreover, Wall Street analysts expect the stock to hit $20.94 in the near term, which indicates a potential upside of 52.4%.

POWR Ratings Show Promise

VALE has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. Out of these categories, VALE has a B grade for Growth, consistent with analysts’ expectations that its revenue and EPS will increase this year.

The stock has an A grade for Value, in sync with its forward non-GAAP P/E and EV/S of 2.82x and 1.27x, lower than the industry averages of 14.10x and 1.65x, respectively.

Moreover, VALE has an A grade for Quality. This is justified as its trailing-12-month gross profit margin of 61.64% is 103.1% higher than the industry average of 30.35%. Its trailing-12-month ROCE and ROTA of 46.08% and 18.83% are higher than the industry averages of 12.35% and 5.07%, respectively.

VALE is ranked #5 out of 36 stocks in the Industrial – Metals industry. Also, click here to see VALE’s ratings for Stability, Sentiment, and Momentum as well.

Bottom Line

VALE reported impressive results in the second quarter, thanks to increased iron ore sales volume and favorable market conditions. Even as regional supply issues persist and demand recovers, the company expects to see the market in a marginal surplus this year. So, it could be wise to bet on the stock now.

How Does Vale (VALE) Stack Up Against its Peers?

While VALE has an overall POWR Rating of B, you could also check out these other stocks within the Industrial - Metals industry with an A (Strong Buy) rating: Ryerson Holding Corporation (RYI), Atkore Inc. (ATKR), and Norsk Hydro ASA (NHYDY).

VALE shares were trading at $14.04 per share on Wednesday afternoon, up $0.30 (+2.18%). Year-to-date, VALE has declined -1.83%, versus a 17.08% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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