One of the cheapest stocks in our all All Investable – Stock Screener is Ternium SA (ADR) (NYSE:TX).
Ternium is a leading steel producer in Latin America, with an annual production capacity of approximately 11.0 million tons of finished steel products. The company manufactures and processes a broad range of value-added steel products for customers active in the construction, automotive, home appliances, capital goods, container, food and energy industries. With production facilities located in Mexico, Argentina, Colombia, the southern United States and Guatemala, Ternium serves markets in the Americas through its integrated manufacturing system and extensive distribution network. In addition, Ternium participates in the control group of Usiminas, a Brazilian steel company.
A quick look at the company’s share price over the past twelve months (below) shows that the stock has risen 109% to $26.30 just 7% off its 52 high of $28.04.
(Source, Google Finance)
While the twelve month rise in the company’s share price has been phenomenal, closer inspection shows the company still remains undervalued.
There’s no question that 2016 was a great year for Ternium which saw its share price rise by 109%. With FY2016 EBITDA of $1.5 Billion, EBITDA margins of 21% and an EBITDA per ton of $160, Ternium is operating well above its competitors. While there is still speculation over NAFTA’s future terms of trade the company continues to have solid growth prospects in all of its markets, particularly Mexico and will benefit greatly from its new steel making acquisition, CSA.
CSA provides Ternium with a state-of-the-art technology facility with just-in-time iron ore deliveries provided through a railroad system that goes directly into the mill and coal to feed the coking oven plants through its own harbor. The result should be significant cost savings, freight efficiency, inventory, and opportunities to streamline logistics as well as low cost iron ore and coal supply.
Combine that with the company’s excellent track record of being operationally efficient, its ability to generate strong free cash flows, and its strong balance sheet. Ternium is also started to receive protection against unfair competition from Chinese steel makers and is well positioned for continued growth thanks to its strategic geographic location.
In terms of its valuation, Ternium has a FCF/Price Yield of 13% (ttm), a FCF/EV Yield of 10% (ttm), and an Acquirer’s Multiple of 6.16, or 6.16 times Operating Earnings*. The company is currently trading on a P/E around 14 compared to its 5Y average of 20, all of which indicates that Ternium is still undervalued. Plus, the company provides a nice dividend yield of 4% which is expected to grow in coming years.
You can read our full analysis on Ternium at Valuewalk here.
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