ArcelorMittal Q3 preview: Where next for the ArcelorMittal share price?
Joshua Warner November 9, 2021 1:41 PM
ArcelorMittal’s interim results were the best on record since 2008 and markets are expecting things to have improved further in the third quarter. We explain what to expect and consider how ArcelorMittal shares could react this week.
When will ArcelorMittal release Q3 earnings?
ArcelorMittal is scheduled to release third quarter on Thursday November 11.
ArcelorMittal Q3 earnings preview: what to expect from the results
ArcelorMittal, the integrated iron ore miner and steel producer, reported its strongest set of results in the first half since 2008, driven by the global economic recovery from the pandemic pushing up demand as well as prices. Steel prices were over 41% higher on average compared to the year before, helping boost profits to their highest level in 13 years.
The strong performance allowed ArcelorMittal to strengthen its balance sheet, with net debt being slashed to $5.0 billion from $6.4 billion at the end of 2020. That, in turn, underpinned ArcelorMittal’s ability to launch a new $2.2 billion share buyback programme that should be completed by the end of 2021.
ArcelorMittal said it expected demand to improve further in the second half, setting a buoyant tone ahead of the third quarter results. That was cemented by the fact the company said it expected steel consumption to rise by 7.5% to 8.5% this year compared to 2020, raising its target from the previous range of 4.5% to 5.5%.
However, we have seen some cooling off in terms of prices of late. Prices for certain steel has experienced a drop in recent months, while iron ore prices have also come under considerable pressure. Overall, the pricing environment remains favourable compared to last year when demand collapsed thanks to the pandemic. Still, market prices tend to take time to feed through to ArcelorMittal’s business, leading analysts at Bloomberg to believe its mining, European and ACIS businesses (with the latter covering its operations in Kazakhstan, South Africa and Ukraine) could all build on the record results seen in the second quarter during the third. However, that does pose questions going into the fourth quarter. Meanwhile, momentum is considered to be more favourable for its US and Brazilian businesses for both the third and fourth quarters.
Analysts forecast sales will jump to $22.10 billion from $13.26 billion the year before, and also leap from the $19.34 billion reported in the previous quarter, according to consensus numbers from Reuters.
ArcelorMittal is expected to report operating income of $5.65 billion in the third quarter compared to the $162.0 million profit squeezed out last year, and also improving from the $4.43 billion booked in the second quarter of 2021. Net income attributable to shareholders at the bottom-line is seen coming in at $4.43 billion and turning from the $261.0 million loss booked the year before and climbing from the $4.00 billion profit in the previous quarter.
Basic EPS is forecast at $4.16 for the third quarter compared to the $0.50 loss the year before and the $3.46 profit booked in the second.
Analysts expect net debt could fall below the $3.0 billion mark in the third quarter which, if achieved, could allow the firm to unleash more funds on shareholders with markets currently eyeing another potential $1 billion share buyback to be unveiled this week.
ArcelorMittal shares have more than doubled over the last year and in August the stock hit its highest level since 2012, although it has fallen over 7% since then. Brokers are bullish on the company’s prospects with an average Buy rating and target price of EUR39.61, implying there is some 39% potential upside from the current share price. Separate data from Bloomberg suggests the stock is only trading at 2.8x enterprise value to Ebitda based on consensus numbers for 2022, which is considerably lower than the average 3.5x seen among other European steel producers.
Where next for the ArcelorMittal share price?
The ArcelorMittal share price has been steadily trending higher since September last year. The share price reached a high of EUR30.80 in mid-August before easing lower. It has traded relatively range bound since July, capped on the upside by EUR30.80 and on the lower band by EUR23.75.
The share price trades towards the upper end of the parallel channel, above the 200 & 50 sma. The RSI is also supportive of further upside.
Buyers might look for a move above EUR30.80 for a breakout trade towards EUR34.35, a high from April 2012.
Meanwhile sellers could look for a move below EUR23.75 for further losses towards EUR21.25, the low March 23rd.
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