What’s Happening With ArcelorMittal Stock?

ArcelorMittal (NYSE:MT) posted a mixed set of Q3 2022 results as mounting economic headwinds and high energy costs weighed on results. While revenues fell by about 6% year-over-year to $19 billion, earnings stood at $1.11 per share, down from over $4 in the year-ago quarter. ArcelorMittal’s total steel shipments declined about 7% to 13.6 million tons due to a host of factors.  Economic headwinds are mounting as the Federal Reserve and other central banks raise rates to fight  inflation. China, the world’s largest steel consumer, is also seeing demand cool amid Covid-19 lockdowns and a slowdown in the real estate market. Major steel consumers in the U.S. have also been working through their existing inventory and this has also hurt demand. ArcelorMittal’s margins are also taking a hit, due to sequentially weaker pricing and elevated costs for energy and raw materials following the Russian invasion of Ukraine.

However, we remain marginally positive on U.S. ArcelorMittal stock with a $27 price estimate, which is about 10% ahead of the current market price. The company has cut its debt, with net debt declining from about $10 billion in 2018 to under $4 billion at the end of the last quarter, which should be manageable even in the current rising interest rate environment. Moreover, although the company has considerable exposure to Europe – which faces issues relating to natural gas supplies – it has optimized its use of natural gas by close to 30% versus last year, and this could eventually prove a tailwind as things get better. The company’s valuation is also quite reasonable, even taking into account the inherent cyclicality of the steel business. The stock trades at under 2.5x projected 2022 earnings and about 7x projected 2023 earnings.  See our analysis of ArcelorMittal Valuation: Is MT Stock Expensive Or Cheap? for a closer look at what’s driving our price estimate.

[1] Month-to-date and year-to-date as of 11/11/2022
[2] Cumulative total returns since the end of 2016