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Has the Trump Rally Taken U.S. Steel Too Far Too Soon?

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Trump rally

U.S. Steel Corporation (X) has been rising since Donald Trump was elected as the 45th US president. Trump’s win helped revive market sentiments. It also helped U.S. Steel’s upward price action. U.S. Steel has gained more than 67% since Trump’s election. On a year-to-date basis, the stock has gained 340%. In this part, we’ll see how analysts rate U.S. Steel after its stellar rally.

part 5 us steel 1

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Analysts’ recommendations

According to consensus estimates compiled by Thomson Reuters, U.S. Steel has a mean one-year price target of $30.13. It represents 14.1% downside compared to the closing prices on December 28. Notably, U.S. Steel is trading at a significant premium to its consensus one-year price target. Nucor (NUE) and Steel Dynamics (STLD) are trading slightly below their consensus one-year price targets.

Of the 18 analysts surveyed by Thomson Reuters, eight rated U.S. Steel’s stock as a “buy,” while three analysts rated it as a “sell.” The remaining seven analysts rated U.S. Steel as a “hold.”

Earnings sensitivity

U.S. Steel has a high sensitivity to spot steel prices. We saw a sharp rally in US steel prices over the last month. However, it’s important to note that although Trump’s election helped build momentum in steel prices, other factors are also supporting US steel prices.

Steel production is raw material–intensive in nature. Iron ore, steel scrap, and coking coal are the key raw materials that go into steel production. Raw material pricing has firmed up over the last few months. As international steel prices rose (MT) following rising raw material prices, the differential between US and international prices narrowed. Narrow spreads between US and international prices also supported US steel prices (XME).

In the next part, we’ll see what a Trump presidency could mean for U.S. Steel.

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