Deutsche Bank (NYSE:DB) downgraded Mechel OAO (NYSE:MTL), citing valuation and earnings. They downgraded the Russian miner from "Buy" to "Hold."
"Mechel remains our preferred growth story in the Russian metals and mining space; hence, we assume a terminal growth rate of 5% in our DCF model. We are concerned, though, about the company’s deteriorating cash flows due to the rising asset intensity of the business. This, coupled with an excessive debt position and high near-term capex requirements, pushes financial risks to the upside. The stock reaching a valuation of 6.1x 2011E EV/EBITDA has prompted us to downgrade it to Hold, with a new 12-month target price of USD26.1/ADS (vs USD27.1/ADS previously). The launch of the Elgaugol deposit is likely to attract plenty of interest in the stock; however, additional coal volumes are unlikely to improve the near-term earnings outlook, in our view," said Deutsche.
Mechel closed Monday at $25.04, gaining $0.12, or 0.48 percent.
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