RIO - Companhia Vale Do Rio Doce - forecasting earnings jump of 30%

Companhia Vale Do Rio Doce (RIO) shares have been advancing over the past two months on the heels of continued global steel shortages and the company's incredible pricing power. Vale was recently able to renegotiate its pricing structure with some of its major Asian and European customers, boosting its ore prices by as much as 65%.

Full Analysis

Companhia Vale Do Rio Doce is one of the worlds largest mining companies, specializing in the exploration, production and deployment of such materials as iron ore, coal and copper. The company is the worlds largest iron ore producer, was founded in 1942 and is headquartered in Rio de Janeiro, Brazil.

Shares of RIO have been in a very nice up trend since bottoming out with the overall market on Jan 23, just below the $25 mark. Since then, shares have traded as high as $38 on the heels of shortened global steel supplies and the company's growth initiatives.

In the last five years Vale has invested $20.6 billion in acquisitions and another $20.1 billion in maintaining its operations, research and development and project executions.

These initiatives have produced record growth numbers for the company, with revenue jumping nearly 600% to $33.1 billion from 2003 to 2007. The $33.1 billion of revenue recorded in 2007 represents a 28.8% increase from 2006.

Net earnings also took a big jump forward in 2007, growing more than 62% from 2006 to $11.8 billion.

Due to continued pricing strength and very strong demand for iron ore driven steel products, Vale was able to recently renegotiate its contracts with some of its major European and Asian customers. Earlier this year Vale announced it was able to secure a 65% increase in its iron ore pricing structure.

Analyst estimates have been advancing over the past 60 days, with the current-year estimate gaining 27 cents and moving to its current projection of $3.09 per share. The next-year estimate is forecasting earnings of $4.14 per share, which would represent a very nice jump in earnings of more than 30%.

Vale is currently boasting an unbelievable profit margin of more than 35%.

As previously mentioned, shares of RIO have been in a very nice up trend over the last few months. The key to the chart in the near-term is the key level between $37 and $38. This is both the 52-week and all-time high, and has been tested numerous times. Thus far, shares have been unable to eclipse this boundary, but are once again headed in that direction. With Vale renegotiating some of its key contracts, it may provide the fundamental strength to drive shares into uncharted territory.

Content Courtesy: Zacks Investment Research

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