Factors that Led to a Slew of Upgrades for Vale SA
The word on Wall Street
Among the analysts that track Vale SA (VALE), 30% gave the company a “buy” recommendation, and 17% gave it a “sell” recommendation. Vale’s target price is $10.14, which implies an upward potential of 3%.
In the past year, Vale’s target price has risen 147%, with its share price staying firm due to stronger-than-expected commodity prices—especially for iron ore. This is also true for other iron ore miners such as Rio Tinto (RIO) and BHP Billiton (BHP).
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Vale has seen several upgrades in the past six months. Alliance Bernstein, Credit Suisse, Citigroup, J.P. Morgan, and Morgan Stanley have all upgraded the stock.
On January 25, 2017, Alliance Bernstein upgraded Vale from “market perform” to “outperform” and has a target price of $14.20 for the stock. Alliance Bernstein analysts Paul Gait, Marion de Floris, and Jonathan Absolon stated, “What we find now in Vale is a very different beast altogether to the beaten up, capex heavy and debt-laden proposition we once did. Indeed, we believe that we have reached an inflection point for the company.”
Credit Suisse (CS) upgraded Vale from “underperform” to “neutral” on December 7, 2016.
Citigroup (C) upgraded Vale from a “sell” to a “neutral” on November 1, 2016. Citigroup also raised Vale’s target price from $4.40 to $7.30, with analyst Alexander Hacking stating, “We downgraded Vale to Sell in 2014 on the thesis that 2014-16 would be a cash crunch, and this now appears to be in the rear-view mirror.”
Citigroup expects Vale to face seasonal tailwinds in the short term and to be free cash flow positive in 2017. It also expects Vale to benefit from higher Chinese steel prices (SLX).
J.P. Morgan upgraded Vale from “neutral” to “overweight” on September 12, 2016. It also increased the stock’s 12-month target price from $5 to $7. Stronger-than-expected iron ore prices were part of the reason J.P. Morgan turned positive on Vale, commenting that Vale’s business is improving and that it expects the company to report positive free cash flow in 2017 and beyond.
In the next part, we’ll look at Vale’s analyst estimates.