Factors affecting analysts’ estimates for Vale
As of December 21, Vale (VALE) had returned 5.5% year-to-date. While the stock’s gains haven’t been much in absolute terms, it has outperformed most of its close peers. In the same period, Rio Tinto (RIO) has returned -9.8%, BHP (BHP) has returned 2.4%, and Freeport McMoran (FCX) and Glencore (GLNCY) have fallen 47.2% and 32.8%, respectively.
Vale’s prudent capital allocation strategy, change in governance practices, and focus on deleveraging and cost reduction have led to its stock’s outperformance in 2018.
Analysts expect Vale to achieve revenue of $36.8 billion in 2018, implying an 8.2% increase YoY (year-over-year). This growth expectation has been supported by strong iron ore production growth and growth in other segments. Vale is particularly trying to increase production in its base metals (DBB) division to get ready for the electric vehicle (TSLA) revolution.
While its latest S11D project is expected to drive volume growth in the iron ore segment, the company is now focusing more on value versus volume, as it highlighted during its investor day. For more information, read Vale Day Update: What to Expect from Vale in 2019 and Beyond.
EBITDA margin estimates
Analysts also expect a significant 9.2% YoY jump in Vale’s 2018 EBITDA to $16.7 billion. This EBITDA estimate for Vale implies an earnings margin of 45.6%—slightly higher than its margin of 45.0% in 2017. The company’s margin is expected to slip to 44.5% in 2019 and 43.4% in 2020.