Ternium Hit Too Hard On Near-Term Steel Price And Margin Weakness

Tougher times usually see investors run toward quality, but that hasn’t benefited Ternium (NYSE:TX) this year, as the shares of this Latin American steelmaker have fallen about 13% since my last update, underperforming Steel Dynamics (STLD) and Nucor (NUE) by a wide margin, as well as ArcelorMittal (MT) and Gerdau (GGB). Given Ternium’s leverage to a recovering North American auto industry and longer-term reshoring, I think this underperformance is short-sighted, but it is also true that Ternium is looking at weaker EBITDA margins through 2023/2024 and a competitive Mexican steel market.

I still believe Ternium is undervalued, and I further believe that the relative valuation has become meaningfully more attractive. This is likely not a name that will get much love over the next six months, as prices and spreads continue to weaken, but I see upside into the $40s as investors eventually come back to the strong margins, cash generation, and balance sheet and the positive growth outlook.

 

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Ternium Hit Too Hard On Near-Term Steel Price And Margin Weakness