Seeing Alpha: Ternium Toughing It Out Amid Weak Prices

With both steel stocks and Mexican stocks showing some decent performance since the lows earlier this year, last year's call on Ternium (NYSE:TX) doesn't feel quite so horrible. Although shipments grew 2% in 2015 and Ternium remains well-placed to take advantage of growth in both auto production and infrastructure spending in Mexico, weak steel pricing due in part to Chinese competition pushed prices down by double digits.

On the positive side, Ternium still generates relatively attractive EBITDA per ton and the Mexican government has taken steps to reduce the imports of Chinese steel. In addition to leveraging Mexico's growing auto sector and benefiting from infrastructure spending, Ternium is positioned to take some advantage of the eventual recoveries in Argentina and Brazil. The timing of those improvements is quite uncertain though, as is the outcome of a long-running dispute with Nippon Steel & Sumitomo Metal (OTCPK:NSSMY) over the Usiminas (OTC:USNMY) steel company, and there is no certainty that steel prices will stage (and hold) any meaningful long-term price recovery. Even so, long-term revenue growth in the range of 3% to 4% and mid-single-digit FCF margins can still support a fair value around $20
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Ternium Toughing It Out Amid Weak Prices