ArcelorMittal: Likely Past The Cyclical Low

Core Viewpoint - ArcelorMittal demonstrated resilience in Q2 2024 with an EBITDA of $1.5 billion despite lower steel prices, and while a decline in EBITDA is expected in Q3, signs of market stabilization and strategic investments position the company for a potential rebound [2][4][10] Financial Performance - The Q2 EBITDA of ArcelorMittal was approximately $1.5 billion, aligning with analyst consensus expectations [4] - The company anticipates a sequential decline in EBITDA in Q3 due to lower steel prices and weak demand [4][10] - ArcelorMittal's net debt stood at about $5.2 billion at the end of Q2, with a projected net debt of $5 billion by the end of 2024, indicating a net debt/EBITDA ratio of 0.8x [4][6] Market Conditions - Steel prices have faced downward pressure due to high Chinese exports, weak macroeconomic conditions, and falling input costs, but are believed to have reached a cyclical low [5] - Indicators of market correction, such as trade protections and potential production cuts in China, suggest a possible recovery in the steel market [5][10] Strategic Investments - ArcelorMittal is progressing on its strategic capex plan, with over 75% of investments completed by the end of 2024, particularly in Brazil and India, expected to drive a 25% increase in EBITDA in the coming years [5][10] - The company has maintained a balanced approach to capital allocation, spending approximately $11 billion on share buybacks and dividends since 2021 while investing around $7 billion in strategic capital expenditures [6] Valuation - A residual earnings model estimates the fair implied value of ArcelorMittal's equity at around $44 per share, indicating an upside potential of approximately 83% [7][10] - Sensitivity analysis suggests that under various scenarios, ArcelorMittal's stock remains undervalued [8]