Despite Disasters, Vale is Now Undervalued, Says Analyst


Just before the long weekend, a number of major companies that were previously considered tarnished by the mainstream investment community have now emerged as potentially solid investments.

One of those happens to be the world’s largest iron miner, Vale (NYSE: VALE). After getting hammered over the past few months on negative news from dam disasters to prosecutorial and legal damages. However, it appears Vale is on the road to recovery as one analyst has now said that the company is undervalued.

RBC Capital Markets analyst Tyler Broda wrote just before the long weekend in a note to clients that he considers the world’s largest iron miner to be a potential investment now that the dust has settled so to speak.

Raising his rating of the stock to “sector perform” as opposed to the “underperform” rating it’s had until now, Broda goes on to say that he expects the company to stage a mild turnaround.

“Vale is starting to emerge from the recent tragedy…and with a more robust near-term iron-ore outlook, we think that Vale’s valuation has moved to neutral levels,” he said as the company reported setting aside $4.9 billion to compensate the victims of their dam disaster. “Risks still remain, but solid cash generation and a recovery in production, with plenty of embedded optionality elsewhere drives the upgrade.”

While a neutral rating might not seem that impressive at first, it’s a significant change for a company that’s mired in so much negative press. Since the Brumadinho dam burst back in late January, killing over 300 people, Vale’s stock has been volatile, having declining 8 percent so far in 2019 amidst a number of crashes and recoveries.

Over the past few months, Vale has suspended its shareholder dividend as eight executives were arrested, and its chief executive stepped down from his position.

Although the company has suffered as many facilities suffered closures, the decrease in output from the company has been offset partially by surging iron prices. With prices breaking the $100 per tonne mark, iron miners can enjoy significantly increased profit margins for the next little while.

Overall, this puts Vale in a peculiar position where the markets have reacted too harshly to the news, ignoring that the company is well poised to recover within the coming months to an extent. While there’s still likely to be many more negative news developments surrounding the company, Vale could very well stage a comeback later in 2019.

Shares of the iron miner increased around 2 percent on Friday in response to the good news. Over the past week, Vale’s stock price has recovered, breaking what has been a multi-month downtrend for the company.

Vale Company Profile

Vale is the world’s largest iron ore miner and one of the largest diversified miners, along with BHP and Rio Tinto.

Earnings are dominated by the bulk materials division, primarily iron ore and iron ore pellets, with minor contributions from iron ore proxies, including manganese and coal.

The base metals division is much smaller, primarily consisting of nickel mines and smelters with a small contribution from copper. – Warrior Trading News