We came across a bullish thesis on ArcelorMittal SA (NYSE:MT) on ValueInvestorsClub by celtsfan86. In this article, we will summarize the bulls’ thesis on MT. The company’s shares were trading at $25.84 when this thesis was published, vs. the closing price of $28.98 on Feb 26.
A steel coil being loaded into a facility for further processing and distribution.
MT operates as an integrated steel and mining company in the United States, Europe, and internationally. It is the largest steelmaker outside China with assets in over 15 countries and employs over 125,000 people.
MT has improved its portfolio as 2/3 of EBITDA is derived from markets like NAFTA, India and Brazil compared to 50% contribution from Europe a decade earlier. While demand in these markets has been sluggish in the past year, additional import duties and quotas should sustain growth for MT in these regions. MT offers a much more profitable proposition compared to Chinese steelmakers who no longer enjoy VAT refunds for exports and have faced losses similar to 2015/2016 levels when the demand for steel waned in the local market.
Fundamentally, the balance sheet is stronger with Net Debt/EBITDA reducing from 3x in 2015 to 0.75x in 2024. The reduction in debt also lowered interest expenses by $1.1 billion and stabilized cash flows at a time when commodity prices were volatile. A strong cash position enables MT to grow organically and EBITDA is estimated to improve by 25% or $1.8 billion in the next 2.5 years. Not only did the company reduce debt but it also brought the share count lower by 30%. This reduction in capital base should improve return to shareholders who happen to enjoy a forward dividend yield of ~1.7%.
Shares of MT have been lagging behind even after changes to its business composition. MT trades at an EBITDA multiple of less than 4x which is much below its peers like Cleveland-Cliffs (EBITDA multiple over 8x). MT enjoys a stronger balance sheet and better geographical diversification compared to its peers and would warrant a higher multiple. The promoters have not participated in the buyback and this implies an undervaluation of the stock. With a conservative 8x EBITDA multiple, MT offers a potential 100% upside.
While we acknowledge the potential of MT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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