Why Analysts’ Optimism for Vale SA Has Increased in Recent Months

The word on Wall Street

Among the miners we’re discussing in this series, Vale SA (VALE) has the highest percentage of “buy” ratings at 65.2%. Another 30.4% of analysts rate it as a “hold,” while 4.3% of analysts recommend a “sell” on the stock.

Another interesting thing to note is that there has been a significant shift in the stock’s ratings in the last few months. The percentage of “buy” ratings on the stock has more than doubled from just 31.8% at the end of April 2017.

Why Analysts’ Optimism for Vale SA Has Increased in Recent Months

“Buy” ratings have doubled

Many factors have contributed to the positive shift in the overall sentiment for Vale. The company has continued to focus on debt reduction. In 2017, it also improved its corporate governance practices, allaying some of investors’ concerns regarding transparency. The continued ramp-up of its S11D project is also helping the investor sentiment as well as the analyst sentiment on the stock.

The stock’s target price has risen 71% in the last year due to the positive turnaround of the company’s fundamentals. Vale’s peers (XME) Rio Tinto (RIO) (TRQ) and BHP Billiton (BHP) haven’t seen such growth in their target prices.

Vale’s upgrades

On December 5, 2017, Credit Suisse (CS) upgraded Vale from a “neutral” to an “outperform” and increased its target price on the stock from $11.3 to $15.0. The company cited China’s positive structural changes and the company’s ongoing deleveraging strategy. The company also cited Vale as its preferred exposure to the current uphill commodity cycle.

Morgan Stanley (MS) upgraded Vale to an “overweight” from an “equal weight” rating on November 27, 2017. The company believes that Vale’s cash flows are catching up with Rio’s. They expect Vale to generate free cash flow of $31 billion (a 58% yield) from 2018 to 2022 compared to Rio’s $26 billion (a 31% yield).

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

Overall the company has seen eight upgrades in 2017, reflecting increasing optimism for the stock among analysts.