Investing.com -- ArcelorMittal (NYSE:MT)’s stock was downgraded by analysts at Jefferies in a note dated Wednesday, shifting the rating to "hold" from "buy," as they anticipate a period of share price consolidation following a strong rally.
The brokerage maintained its price target at €33, implying a 12% upside from the stock’s last closing price of €29.50.
"MT has rallied +32% YTD (SXPP: +2.5%), outperforming US steel peers (0-23%) and we downgrade to Hold (from Buy) with unchanged €33 PT," Jefferies analysts said.
They expect a cooling-off period for the stock as uncertainties surrounding Mexico and Canada persist.
"We expect a period of share price consolidation near term, as Mexico & Canada uncertainty remains. While EU mid-term steel outlook is better, we need visible pricing & demand to drive upgrades,” the analysts said.
Despite improved investor sentiment driven by expectations of reconstruction demand in Ukraine, German government spending, and broader European policy support, Jefferies sees limited near-term catalysts for further stock appreciation.
The brokerage noted that while steel prices in Europe and the U.S. have surged this year—rising by 13% and 25%, respectively—the initial boost appears to have played out.
"To justify a move higher in EU steel sector, which has rallied +32-142% YTD, we believe steel prices & earnings need to visibly start to move up and build conviction in longer-term demand to re-rate," the analysts added.
Concerns over uncertainty in Mexico and Canada were also cited as key factors contributing to the downgrade.
"Canada (4.9mT) & Mexico (3.8mT) are <20% EBITDA, and US tariffs are negative. MT’s strong domestic Canada & Mexico businesses (exports <20%), cost benefits from FX, US pricing effects & mitigating actions make it not as bad as some feared," Jefferies noted, suggesting that while risks exist, they may be more manageable than some investors anticipate.
The analysts also touched on speculation regarding ArcelorMittal’s potential move to increase its 28.4% stake in Vallourec (EPA:VLLP), a French manufacturer of tubular steel products.
"Investor incomings on potentially increasing 28.4% stake in VK (via cash or equity) have increased, and we explore scenarios," Jefferies said.
With Vallourec’s share price up 11% year-to-date, speculation has grown over whether ArcelorMittal might seek to acquire the remaining 72% stake through a cash or equity-based transaction.
While Jefferies sees a full cash buyout as a more attractive option from an earnings-per-share perspective, they did not suggest any imminent transaction.