Vale (VALE3, VALE5) has recently announced results for the first quarter and the market was not impressed. Analysts from major brokerage firms and investment banks noted that the weak numbers were not a surprise, as the beginning of the year results tend to be affected by the rain season and its effects on Vale’s mines. The storms this year, however, were stronger than normal, having a greater impact on results than projected.
Overall, net income totaled R$3.827 billion, a decrease of almost 44% over the same period last year. In comparison with the previous quarter, the fall was 18.1%.
All in all, many analysts still believe in the company’s shares. In reports to their clients, 10 financial institutions made ”buy” or “hold” recommendations, not a single one analyst pushing the “sell” button.
Check out what each of the 10 analysts are saying about Vale’s results (and don’t forget their names if you loose money!)…
1. Felipe Hirai, Bank of America Merrill Lynch
The analyst lowered the price target of Vale’s ADRs from US$ 31 to US$ 29, highlighting this year’s pressures on EBITDA and earnings per share.”Despite this revision, we still maintain Vale as our ‘top pick’ in Latin America,” the analyst said in a report. His recommendation is “buy”. In his analysis, Hirai said that the “weak” result should have a negative impact on the stock in the short term, but that the company will make up for the losses in the future.
2. Fernando Siqueira / Hugo Rosa, Citi
Citi analysts are less confident about the results improvement in the near term. “We believe the good results will start coming back in late 2012 only.” Their recommendation is to “buy” VALE5 with a target price of R$51.33.
3. Marco Aurélio Barbosa, Coinvalores
The Coinvalores analyst noted that the heavy rains and the lower iron ore prices were the factors that pushed the results lower than expected.
“Although the results have fallen short of our expectations, we believe that over the coming months the company will report better numbers,” he said in a report. The positive projections come as he expects the return to normal production and continued Chinese demand.
4. Rodrigo Barros, Deutsche Bank
For the analyst, the results of the first quarter were weak and may pressure the stock price. His price target for Vale’s ADR is US$ 30.”We recommend increasing exposure to Vale if the share price weakens,” he said.
According to the report, Vale’s results were below Deutsche Bank’s projections. The analyst noted that EBITDA was R$4.9 billion when their projection was R$ 5.5 billion. Part of this difference, Barros said, occurred due to lower cash generation in the base metals division.
5. Jonathan Brandt, HSBC
For Brandt, it is more important to focus on second quarter guidance than first quarter results. “In our opinion, the market should ignore the challenging first quarter due to the heavy rainfall (over 50% in some regions),” said the analyst.
He projects good results in the second quarter due to growth in volumes, higher prices of iron ore and the more depreciated Real exchange rate. He is “neutral” on VALE3, giving it a target price of R$48.
6. Marcos Assumpcao / Andre Pinheiro, Itau BBA
Analysts say they agree with Vale’s positive but cautious outlook on the iron ore market despite a slowdown in China’s economy. The analysts believe in a healthy growth in steel consumption, giving the stock an “outperform” recommendation with a target price of US$30 for the ADR and R$53 for VALE5.
7. Rogerio Zarpao, J. Safra
After the publication of results, the analyst maintained its outperform rating for VALE5. In a report, Zarpao noted that results came in below consensus and seasonal costs higher than expected, with lowered iron prices and volumes contributing to the negative results.
“However, the company emphasized in its disclosure that operations have already returned to normal, so we expect better results in the coming quarters,” he said.
8. Carlos De Alba, Morgan Stanley
Morgan Stanley still has an “overweight” recommendation for the ADRs with a target price of US$ 28.40. The analyst considered the results weak, but the positive aspects of the announcement was that a March-end recovery reaffirmed management’s expectations that the yearly goals will be met.
As potential risks to the planned recovery, the analyst highlights the political and macroeconomic slowdown in the Chinese and the global economy overall.
9. Analysts at brokerage firm Planner
Planner analysts point out that first quarter results tend to be weaker anyway because of seasonal factors, although this year the effect has been stronger. They maintained their “buy” recommendation for VALE5, with a target price of R$55.
10. Leonardo Milane, Santander
The strategist pointed out that the poor results were not a surprise and that the stock should have a negative impact in the short term. “We remain cautious about the company’s story in the short term due to the lack of momentum and positive catalysts,” he says. The recommendation for VALE5 is “hold” with a target price of R$48.