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On Wednesday, Wolfe Research adjusted its stance on Vale S.A. (NYSE: VALE), raising the stock's rating from Underperform to Peer Perform. The change in rating follows a reassessment of the company's prospects and valuation metrics.
Wolfe Research now believes that the negative factors affecting Vale's performance have been adequately factored into the stock's current price range.
The research firm has established a fair value range for Vale shares between $8.50 and $9.50. This valuation is based on a multiple of 4 times the estimated 2025 Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) at the higher end, while the lower end accounts for the recent weakness in iron ore prices.
Wolfe Research's upgrade comes after their downgrade in early October, which was influenced by several concerns, including the financial liabilities from the Samarco disaster in 2015 and the Brumadinho dam disaster in 2019, as well as renegotiated railway concessions.
The firm also cited a better understanding of the issues surrounding China's steel oversupply and its implications for Vale. Despite ongoing political uncertainties in Brazil and the potential impact of tariff threats by the United States on the Chinese economy, Wolfe Research sees potential positive developments for Vale.
The appointment of a new head for the base metals division could lead to faster-than-anticipated cost and operational improvements.
Furthermore, Wolfe Research finds Vale's long-term growth prospects in copper particularly attractive. The analysts also favor the company's expected 5% dividend yield for 2025, which adds to the stock's appeal.
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