In this article, we’ll look at ArcelorMittal’s (MT) valuation multiples ahead of its 2Q17 earnings. We’ll look at ArcelorMittal’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization), which is the preferred valuation metric for steel companies (CLF).
Based on July 21 prices, ArcelorMittal is trading at 5.08x its 2017 and 2018 EBITDA. In comparison, U.S. Steel (X) is valued at 6.2x its 2017 consensus EBITDA and at 4.7x its consensus 2018 EBITDA. AK Steel (AKS) has a forward EV to EBITDA of 7.1x based on its consensus 2017 EBITDA and is trading at 6.1x its 2018 consensus EBITDA.
There is a big gap in U.S. Steel’s one-year and two-year valuation multiples. However, ArcelorMittal’s one-year and two-year forward multiples are similar to each other.
We should remember that forward valuation multiples are arrived at from earnings estimates. According to the consensus earnings estimates compiled by Thomson Reuters, ArcelorMittal is expected to post EBITDA of $7.8 billion in 2017 and 2018. However, analysts expect the earnings of other steelmakers including U.S. Steel and Nucor (NUE) to rise next year.
There is a sense of cautious optimism in global steel markets. We’ve seen a sharp decline in Chinese steel exports this year despite higher production. Better-than-expected demand at home has led to an increase in Chinese steel prices. However, not many analysts are convinced that Chinese steel prices can continue their upwards march.
ArcelorMittal’s 2Q17 earnings call could offer us more insight into the global steel industry’s health. Check out our Steel page for a detailed analysis of ArcelorMittal’s 2Q17 earnings once they are released.
In the mean time, you can read Steel Could be the Trump Administration’s Biggest Test to see how the Section 232 imports probe could be a game changer for US steel stocks.