Deutsche Bank analyst Bastian Synagowitz has upgraded ArcelorMittal (MT) to Buy from Hold, raising the price target from $29 to $31. Synagowitz believes that ArcelorMittal’s strong position in attractive markets, which account for 75% of its steel earnings, warrants a more optimistic outlook.
Despite this, the analyst acknowledges that the company’s valuation multiples have been held back by concerns about its European operations, which are currently valued at zero. Synagowitz points to the slowdown in the Chinese steel sector and weaker developed markets as the primary drivers behind a recent correction in ArcelorMittal’s share price.
While the analyst expects a challenging second half of the year, with forecasts slightly below market expectations, he believes the current downturn in the steel cycle may be nearing its bottom. ArcelorMittal’s solid balance sheet and improved portfolio quality provide downside protection, with breakeven free cash flow (FCF) achievable even in a weak scenario.
Furthermore, Synagowitz highlights that 75% of ArcelorMittal’s steel earnings come from attractive markets, and the company’s growth pipeline suggests 25% EBITDA growth over the next 3-4 years. From a fundamental perspective, the analyst believes ArcelorMittal’s low valuation, strong balance sheet, and ability to defend FCF at the bottom of the cycle provide support for the stock.
Despite the low valuation multiples driven by European market concerns, Synagowitz believes significant upside potential exists. He sets a midterm target price of approximately $31 per share, based on the positive long-term outlook for the company.
MT shares are currently trading lower by 0.4% at $23.38.
