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What’s Affecting Vale Stock

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Factors affecting analysts’ estimates for Vale

Almost in line with peers Rio Tinto (RIO) and BHP Billiton (BHP), Vale (VALE) had returned 13% year-to-date as of June 7. Lately, Brazilian stock is being pressured due to economic and political issues facing the country. The nationwide truckers’ strike against high diesel prices has hit stocks. On June 7, the Brazilian real hit a two-year low, which led to a widespread sell-off. The iShares MSCI Brazil ETF (EWZ) is on track to lose 20% so far this year amid these concerns.

Previously, Petrobras (PBR) stock was being pressured, and as a result, its CEO had to step down. Therefore, while Vale’s fundamentals look supported, political and economic concerns could keep impacting the stock until after the elections, which are scheduled for October.

Sales estimates

Analysts expect Vale to achieve revenue of $35.7 billion in 2018, implying a 5.0% rise YoY (year-over-year). Strong iron ore production growth along with higher commodity prices are behind this growth expectation. For Vale, volume growth is also driving its revenue, especially at its S11D project. Vale’s implied revenue growth for 2018 and 2019 is much lower, at 1.0% and -0.3%, respectively.

EBITDA margin estimates

Vale’s EBITDA are also expected to grow, by 4% YoY to $16.0 billion this year. This EBITDA estimate for Vale implies an earnings margin of 44.9%—slightly narrower than its margin of 45.5% in 2017. The company’s margins are expected to taper moving forward, to 41.8% and 41.7%, respectively, in 2019 and 2020. In the next article, we’ll look at Cleveland-Cliffs.

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