7. Vale S.A. (NYSE:VALE)
Share Price: $10.58
Analyst Upside Potential: 41.78%
Forward P/E Ratio: 4.85
Earnings Growth This Year: 19.70%
Number of Hedge Fund Holders: 34
Year-to-Date Decline: 32.65%
Vale S.A. (NYSE:VALE) is one of the major mining companies based in Brazil. The company mainly focuses on iron ore and nickel production. With operations running in more than 30 countries, the company plays a key role in the construction and manufacturing industry by providing iron ore in large quantities.
In fact, during the most recent quarter which is Q2 2024, Vale S.A. (NYSE:VALE) achieved record high production since 2018. The company produced 81 megatons of iron with its S11D reaching a record production for the quarter. As a result of high production, the shipment also increased by 7% year-over-year leading to a reaffirmed 2024 guidance of $21.5 to $23 per ton.
Despite robust performance, the company missed analysts’ expectations in terms of revenue and EPS. During the second quarter, it generated $9.9 billion in revenue, $98.3 million short of market consensus. Moreover, the stock has declined 32.65% on a year-to-date basis and is among one of the worst performing affordable stocks under $40.
But the story does not end here. We have already seen how the company recently reached a record-high production of iron, and management’s strategic goal to become a preferred low-carbon steel supplier is still to be discussed. Vale S.A. (NYSE:VALE) has two major projects under construction. These projects will add more than 30 megatons of iron to the company’s portfolio, combined. The Vargem Grande and Capanema projects are nearing construction and will be ready to operate soon, meaning a step forward toward management’s goal.
Analysts have also acknowledged the progress. 24 analysts have a consensus Buy rating on the stock, with their median price target of $15 presenting an upside of 42% from current levels.
Miller Value Partners Income Strategy made the following comment about Vale S.A. (NYSE:VALE) in its second quarter 2023 investor letter:
“Vale S.A. (NYSE:VALE) fell during the quarter with iron ore prices. The company reported 1Q23 revenue of $8.44B, -22.7% Y/Y, below consensus of $8.79B, and Adjusted EBITDA of $3.69B, compared to 1Q22 EBITDA of $6.55B, below consensus of $4.49B. The Brazilian miner produced 66.8 million tons (Mt) of iron ore in 1Q23, +5.8% Y/Y, below consensus of 67.7 Mt, 67.0 thousand tons (kt) of copper, +18.4% Y/Y, and 41.0 kt of nickel, -10.5% Y/Y. Although management reaffirmed its FY23 production guidance, analysts seemed to be concerned by the negatively offsetting impacts of weaker iron ore prices as China, the world’s largest iron ore buyer, has threatened to curb any “unreasonable” price gains for the metal in an effort to prevent this year’s steel output from exceeding 2022 levels. Vale generated 1Q23 free cash flow (FCF) of $2.28B, bringing trailing-twelve month (TTM) FCF to $6.73B, or a FCF yield of 11.3%. The company repurchased $763MM worth of shares in the quarter and paid $1.80B in dividends, bringing total capital returned to shareholders in the quarter to $2.56B, or 4.3% of the company’s market cap.”
