Why has ArcelorMittal been slow on the stock markets?

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ArcelorMittal on the stock markets

ArcelorMittal (MT) shares fell by ~6% after it posted its second quarter results, making it the largest intraday fall in over two years. The earnings failed to meet the Wall Street’s expectations. While the overall sentiment in the steel industry has been positive as over the past week, companies like U.S. Steel (X) and Nucor (NUE) posted results that were better than Wall Street’s street expectations. Reliance Steel & Aluminum (RS) disappointed the market with its results and got punished on the markets. We’ll look at ArcelorMittal’s historical share price movement.

Why ArcelorMittal has been slow on the stock markets

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While ArcelorMittal is a global leader in steel making, it has lagged its peers when it comes to stock market returns over the past several years. The previous chart shows ArcelorMittal’s share price movement over the past three years. You can clearly see that it has underperformed other major steel companies. The stock still trades at one of the lowest valuation multiples. We’ll look at possible reasons that support its under performance

  • Missing earnings estimates – ArcelorMittal has been regularly missing the analysts’ earnings estimates. The failure to meet the modest street expectations has had a negative impact on ArcelorMittal’s share price. It’s important to note that ArcelorMittal has missed the consensus sales expectations of the Wall Street analysts regularly over the last eight quarters. The earnings record is no better because it managed to beat the earnings estimates only once in last eight quarters.
  • The performance of the European segment – The European operations are the biggest revenue segment for ArcelorMittal. Until a few quarters ago, Europe was reeling under the sovereign debt crisis in the European nations. This led to recessionary conditions in the European markets and therefore negative sentiment for ArcelorMittal. The European market has greatly improved since then, but it’s still way off the pre-crisis levels. The under performance of European region in the past has also contributed to ArcelorMittal’s stagnant share price.
  • Falling iron ore prices – The fall in iron ore prices has impacted integrated steel makers like ArcelorMittal. While other steel companies that source their requirements from outside have reaped the benefits of this fall, ArcelorMittal has been hit hard because of its exposure to mining.

It’s important to note that the steel industry can also be accessed through the SPDR S&P Metals and Mining ETF (XME). Next, we’ll analyze another important topic that talks about the management guidance for the third quarter results.

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