Earnings on Tap: ArcelorMittal

Global steel giant  ArcelorMittal (MT) is set to report third-quarter earnings Wednesday ahead of the bell. Wall Street analysts are expecting earnings of $0.20 per share compared with $0.43 per basic share reported in the year-ago period.

The company became the largest steel producer in 2006 after the merger of Mittal Steel and Arcelor, with about 8% of the world's steelmaking capacity. Supplying one fifth of the global automotive market's steel needs, the company is a strategic partner for many large manufacturers, reaffirming its importance in the global steel market.

However, the debt crisis in Europe has reduced the demand for steel products, and any recovery in global demand is only likely to be at a slow pace. Amid these challenges, the company recently announced its intention to permanently shut down the liquid phase of its Florange plant in eastern France even as it reconfigures its operations.

Morningstar analyst Bridget Freas expects revenues to decline in 2012 on account of weaker steel prices and shipments in Europe alongside only mid-single-digit sales-growth rates in the other segments for the next several years because of slow increases in global steel demand with little improvement in steel prices.

The company's stock is presently trading at a huge discount to Morningstar's fair value estimate after slumping more than 15% since the beginning of the year. The market is assuming the worst for ArcelorMittal amid heightened economic fears, says Freas. But we do not think fundamentals will deteriorate to the severe degree implied by the market price of the shares, she adds.

Morningstar assigns a high fair value uncertainty rating to the company because of the cyclical nature of the steel sector, which is dependent on global economic growth and is often subject to high volatility in order rates, input costs, and selling prices.

Shares have lost 15% year to date and are trading at a discount to Freas' fair value estimate.