Continue Reading Below
Shares of Ternium SA (NYSE: TX) jumped on Wednesday: up more than 10% by 2:30 p.m. EST. While the steelmaker reported weaker-than-expected earnings after the closing bell yesterday, it provided optimistic guidance and announced a compelling acquisition.
Ternium reported a rather mixed quarter. Revenue was $1.85 billion, which was flat sequentially, though it was up 2.2% year over year and about $40 million ahead of expectations. Net income, meanwhile, was $144.8 million, or $0.60 per share, which was a vast improvement from the fourth quarter of last year, when the company reported a loss of $126.5 million or $0.64 per share. However, it was a step back from last quarter's $264.3 million profit, and it missed expectations by $0.10 per share.
Image source: Getty Images.
That said, while Ternium's fourth-quarter results were lackluster, its guidance was much brighter. The company stated that it expects operating income to rise in the first quarter of this year, thanks to increasing shipments and operating margins.
In addition, the company announced that it has agreed to acquire a steel plant in Brazil from ThyssenKrupp (NASDAQOTH: TYEKF) for $1.3 billion. While that plant has had its share of problems in the past, Ternium is getting it for a good value, and it has upside potential. The company paid slightly less than five times EBITDA (earnings before interest, taxes, depreciation, and amortization) for the facility. As the following chart shows, that's below the value that steel-company stocks trade for these days:
Also, the mill shipped 4.3 million tons last year, below its annual capacity of 5 million, suggesting that Ternium could get more out of it.
While the fourth quarter wasn't as good as hoped, Ternium expects its performance to improve during the first quarter. Furthermore, the company took advantage of the challenging steel market to buy an underperforming mill at a good value. It's a deal that could pay big dividends for Ternium in the future, as the Brazilian economy continues to recover from its deep economic slump.
10 stocks we like better than TerniumWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Ternium wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017