ArcelorMittal (ADR) (MT): What’s In Store For This Steel Giant?

Based in Luxembourg, ArcelorMittal (ADR) (NYSE:MT) is a multinational steel manufacturing corporation.  With an annual crude steel production of 97.2 million tonnes, ArcelorMittal is the world’s largest steel producer. ArcelorMittal (ADR) (NYSE:MT) makes long products including bars and rods, flat products including sheets and plates, and stainless steel products. The company has five segments: Flat Carbon Europe, Flat Carbon Americas, Long Carbon Americas & Europe, Asia, Africa and Commonwealth of Independent States (AACIS), and Distribution Solutions.

AreclorMittal’s Earnings

In the first week of February, ArcelorMittal (ADR) (NYSE:MT) announced its earnings for the fourth quarter of 2012. EBITDA fell to $1.32 billion from $1.71 billion in the same quarter last year. For the year, the company reported a net loss of $3.73 billion amid a $4.3 billion write-down in Europe.  Low European demand and a sluggish Chinese market were the core reasons behind this.

Sales were down 10% to $84.2 billion. The company produced 88.2 million tons of steel in 2012. The company’s premier steel product, European hot-rolled coil, was down to its lowest sales in more than two years. By the end of fourth quarter, AreclorMittals’ net debt decreased $1.4 billion to $21.8 billion.

What’s in store for 2013?

The company expects its output to increase by 2%-3% in 2013.  Global steel consumption is expected to increase by 3% in 2013 mainly thanks to growth in Brazil and China. In Brazil, consumption is expected to grow to 5% in 2013 as compared to 1% in 2012.  Unfortunately, the European steel market is expected to decline by a further 1 % next year. As far as earnings are concerned, analysts expect ArcelorMittal (ADR) (NYSE:MT) to report an EBITDA of around $8 billion in 2013.

Valuation

ArcelorMittal (ADR) (NYSE:MT) is trading at a forward P/E (1yr) of 9.97x, making it a slightly cheaper buy in the steel industry. It has a dividend yield of 4.10% and has a strong PEG of 0.71. Using an industry forward P/E of 10.4x, I would value ArcelorMittal:

Using consensus estimates, I value ArcelorMittal at $16, showing an upside potential of a meager 5%. Adding its high dividend yield of 4.10% to this gives us a total return of more than 8%.