U.S. Steel (NYSE:X) -0.9% in Thursday’s trading to its lowest intraday level in seven months after Wolfe Research downgraded the stock to Underperform from Peer Perform with a $19 price target, ahead of an expected “below normal” earnings environment for steelmakers.
“Headwinds have grown” for U.S. Steel (X) from falling prices for Central European sheet and global oil country tubular goods. Wolfe analyst Timna Tanners said.
While U.S. Steel (X) shares do not look particularly expensive, Tanners foresees disappointing earnings ahead and envisions investors concerned over the company’s capex budget exceeding free cash flow, which can continue through 2024.
Tanners likes U.S. Steel’s (X) new non-grain electrical steel capacity additions, set to ramp up starting in Q3, but sees limited benefit relative to the hit from falling prices given a forecast eventual $140M annual EBITDA contribution in 2026.
Wolfe upgraded Nucor (NYSE:NUE) to Peer Perform from Underperform, saying the stock looks more fairly valued with some positive catalysts from sustained free cash flow strength and greater exposure to infrastructure stimulus than most peers.
Overall, Tanners is broadly negative on the steel group and sees “sharp downside” on weaker demand and with new steel mills ramping up.
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