These Factors Are Affecting Vale SA’s Earnings Estimates



Factors impacting Vale’s analyst estimates

Vale SA’s (VALE) stock has returned a very impressive 60.5% in 2017. Strong commodity prices and the company’s continued deleveraging, increasing transparency, and successful ramp-up of its S11D project have helped its stock price. All these factors are why analysts have been turning around on the stock as we discussed in the previous article of this series.

One thing to note is that while Vale still has higher financial leverage compared to its close peers (XME) BHP Billiton (BHP), Cleveland-Cliffs (CLF), and Rio Tinto (RIO), its focus on debt reduction should help it to achieve lower financial leverage going forward.

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Sales estimates

According to analysts’ consensus estimate, Vale should achieve revenue of $33.6 billion in 2017, implying a rise of 22.2% YoY (year-over-year). Strong production growth for iron ore along with higher commodity prices—especially for iron ore—are behind this growth expectation. For Vale, an additional factor driving its revenue is volume growth, especially in its S11D project.

Vale’s implied revenue rises for 2018 and 2019 are much lower at -1.5% and 1.5%, respectively.

EBITDA margin estimates

Similar to the EBITDA (earnings before interest, tax, depreciation, and amortization) expectations for Rio Tinto, Vale’s EBITDA is expected to grow at much higher clip than its revenue in the same year. 

At $15.1 billion, the EBITDA estimate for Vale implies a rise of 43.6% YoY, implying an earnings margin of 45.1%—higher than its margin of 38.3% in 2016. The company’s margins should taper going forward. They’re expected to be 42.6% and 41.0%, respectively, in 2018 and 2019.

In the next article of this series, we’ll take a closer look at Cleveland-Cliffs.


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