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Will U.S. Steel Stay Attractive after Its Spectacular Rally?

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Apr. 6 2016, Updated 10:07 a.m. ET

U.S. Steel in 2016

The upward momentum in steel stocks in 2016 has taken many analysts by surprise. But after the spectacular rise in steel stocks in February and March, analysts now disagree on the sustainability of the recent rally. In this part of the series, we’ll look at some of the recent recommendation changes for U.S. Steel Corporation (X).

Will U.S. Steel Stay Attractive after Its Spectacular Rally?

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Recommendation changes

The graph above shows the recent recommendation changes for U.S. Steel. Jefferies has downgraded U.S. Steel, giving it a target price of $10—a 36% downside over U.S. Steel’s March 24 closing price. By contrast, Credit Suisse has maintained its “overweight” rating on U.S. Steel while raising its one-year target price to $22. Based on its April 4 closing price, this represents an upside of ~36%.

Overall, out of the 18 analysts surveyed by Bloomberg, only two rate U.S. Steel’s stock as a “buy” while six analysts rate the stock as a “sell.” But most analysts are rating it as a “hold” after its recent run-up.

Still attractive?

The fundamentals have definitely improved for U.S. Steel as compared to January 2016, when the stock fell to multiyear lows. Flat-rolled steel pricing has gained pace over the past couple of months in particular. Flat steel products accounted for 70% of U.S. Steel’s 4Q15 shipments, and the company should gain from the recent uptrend in flat steel pricing. Other flat-rolled steel producers including ArcelorMittal (MT), AK Steel (AKS), Nucor (NUE), and Steel Dynamics (STLD) will also likely benefit from higher prices.

Meanwhile, US steel producers (DIA) might have already sealed their 2016 fates—to some extent. We’ll explore this in detail in the next part of the series.

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