Jefferies analyst Chris LaFemina remains sidelined on Vale SA (ADR) (NYSE:VALE) following Vale Day in New York, even though he is impressed in the strides the company has made in reducing costs, capex, and debt. As such, the analyst reiterates a Hold rating on VALE while lifting the price target from $7.50 to $9.00, which represents a just under 5% increase from where the shares last closed.
For now, LaFemina underscores, “There is near-term risk to Vale shares as some speculative froth is coming out of the sector, and the share price upside may be limited over a 12-month horizon (hence our Hold rating). However, the longer term investment case is much more compelling if the company can meet its operational goals.”
A positive for the company when glancing ahead lies in its competitive advantages. “Lower strip ratios, productivity improvements, and higher price premia will lead to higher FCF margins for Vale. In addition, Vale does not have as much of a mine depletion problem as its peers. Over the next 5-7 years, Vale will deplete 4% of its production while BHP will deplete 31% and Rio and FMG will deplete 15%. Sustaining capex for Vale should stay below $3/t whereas Rio and BHP will approach $20/t at the peak. Vale’s FCF margins should be higher than Rio’s, BHP’s and FMG’s over the next decade,” LaFemina concludes.
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Chris LaFemina is ranked #3,930 out of 4,241 analysts. LaFemina has a 43% success rate and loses 9.4% in his yearly returns. When suggesting VALE, LaFemina earns 0.0% in average profits on the stock.
TipRanks analytics exhibit VALE as a Hold. Based on 8 analysts polled by TipRanks in the last 3 months, 2 rate a Buy on VALE, 3 maintain a Hold, while 3 issue a Sell. The 12-month average price target stands at $6.00, marking a 30% downside from where the stock is currently trading.