Why Analysts Are Worried by Vale’s Core Asset Sale Announcement


Mar. 8 2016, Updated 1:06 p.m. ET

Analyst recommendations

Among the analysts that track Vale (VALE), 19% have given the company a “buy” recommendation and 31% have given it a “sell” recommendation. For Rio Tinto (RIO), 50% of analysts are recommending a “buy” while 9% are recommending a “sell” for BHP Billiton (BHP) (BBL). In comparison, Freeport-McMoRan (FCX) has “buy” recommendations from 33% of analysts covering the stock. Freeport-McMoRan forms 3.6% of the SPDR S&P Metals and Mining ETF (XME).

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Analyst ratings

Many analysts commented on Vale’s announcement regarding potential core asset sales to reduce its net debt. Bank of America Merrill Lynch has maintained its “underweight” rating on the stock with the target price of $2.3. In regards to the non-core asset sale announcement, BoFA analysts wrote, “We view this as a potentially positive milestone towards the company’s balance sheet and equity story de-risking, although timing and valuation are key components of the equation.”

UBS has a “neutral” recommendation for the stock with a target price of $3.4. The broker said, “I can understand Vale’s strategy because if iron ore slips to $35 per tonne, all of a sudden you have an issue. But the question is what valuations can they get for these assets?”

Regarding the asset sales announcement from Vale, the analyst from Bernstein said, “It really is irrelevant what they sell. This is not the issue. If they want to de-gear, they should reduce sales of iron ore and stop spending capex. As simple as that.”

Analysts are wary of Vale selling assets at this low point in the market, as the assets might fetch low prices and ultimately hurt the company’s long-time prospects.


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