Vale Sa (VALE – Analyst Report) the world’s number one iron ore producer, announced earnings before the bell on Thursday, and they missed HUGE! This is the third consecutive earnings and revenue miss by the company.
The Zacks Consensus Revenue estimate was at $1.06 billion, and Vale posted a net loss of -$1.44 billion, a massive gap in expectation verse actual. Sadly this seems to be a pattern because Vale missed the last 2 quarters by significant margins as well.
On the Earnings front, Vale has missed the Zacks Consensus Earnings Estimate for the past three consecutive quarters, and analysts have noticed. Going into earnings Q3 earnings the Zacks Consensus Earnings Estimate has declined for Q3, Q4, FY 2014, FY 2015 by a material amount for each time period. If you look at the chart below, it shows Vale’s Price and EPS Surprise over the past several years. You will notice the sustained downturn after earnings for the past 7 negative quarters.
Why is Vale Doing So Bad Lately?
The issue is twofold, first the economic situation in Brazil, and specifically the declining value of their currency. The second part is that iron ore prices have just tanked, and are now at its lowest level since 2010. Vale derives nearly two thirds of their revenue from this natural resource. Neither one of these situations is likely to reverse itself in the near term as well. Moreover, the company now sees itself with inventories that have risen by over 9 million tons.
So when your core business is struggling, and the currency of your headquartered country has been under solid pressure, your bottom line will suffer dearly, and suffer it did. Going into earnings there had been a slight bounce in Brazil’s Real, but it was not enough to help the bottom line.
Going into Q3 earnings, analysts have been downgrading Vale for the past 90 days. If you look at the chart below, it shows the Price and Consensus for the past few years. As you can see, this has been a negative trend for a while now. Now given their poor earnings yesterday, the stock is poised to trend down.
With iron ore prices at levels not seen since 2010, and a currency that is struggling to retain its value, it is a nightmare of a situation for Vale. While the company has a few positives, they will be under pressure until iron ore price and demand increase. Therefore, this stock has become the Halloween, Bear of the Day.
Other Stocks to Consider
If you are determined to be in the Mining-Iron segment, you would do best by looking at Cliffs Natural Resources Inc. (CLF – Analyst Report), which holds a Zack Rank #3 (Hold), or Fortescue Metal (FSUGY) which is also a Zacks Rank #3 (Hold).
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