Why Analysts Are Turning in Droves to Vale



The word on Wall Street

Vales (VALE) stock has seen a significant shift in ratings over the last few months, from only 16% of analysts recommending a “buy” for the stock a year ago to more than 62% currently rating it a “buy.” The company’s continued focus on net debt reduction, improvement in governance practices, and the continued successful ramp-up of its S11D project have turned many analysts around on the stock.

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Potential upside

The stock’s target price is $11.90, which implies an upward potential of 7.8%. Its target price has risen 71% in the last year due to the positive turnaround of the company’s fundamentals. The target prices for peers (XME) Rio Tinto (RIO) (TRQ), Freeport-McMoRan (FCX), and BHP (BHP) have risen 29%, 30%, and 20%, respectively.

Series of upgrades after 3Q17

Vale stock is on a high after getting upgrades from four analysts in less than a month. The latest upgrade for the stock came from Credit Suisse (CS), which upgraded Vale from “neutral” to “outperform” on December 5, 2017. Those analysts also increased the stock’s target price from $11.30 to $15. The firm cited positive structural changes in China and the company’s ongoing deleveraging strategy. CS says Vale is its preferred exposure to the current uphill commodity cycle. On November 27, 2017, Morgan Stanley (MS) upgraded the stock from “equal weight” to “overweight.” MS analysts believe Vale’s cash flows are catching up with Rio’s. They project Vale to generate free cash flow of $31 billion (58% yield) from 2018–2022 compared to Rio’s $26 billion (31% yield).

On November 21, 2017, Macquarie upgraded Vale stock from “neutral” to “outperform” with a target price of $11.60.

RBC Capital Markets upgraded Vale from “sector perform” to “outperform” on November 20, 2017. According to the firm’s analyst Tyler Broda, while iron ore prices in the short term could pose headwinds for the stock, its improved balance sheet and healthier trends in commodity markets (COMT) could mean a lot of upside for the stock.

Overall, VALE stock has seen eight upgrades in 2017 so far. Analysts seem to be turning around in droves for the stock.


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