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U.S. Steel: Analysts’ Pessimism Might Not Be Warranted

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Apr. 15 2019, Updated 12:00 p.m. ET

US steel

US steel stocks were disappointing in 2018 despite the Section 232 tariffs. While Nucor (NUE) and Steel Dynamics (STLD) posted record earnings last year, the stocks ended the year in the red. U.S. Steel Corporation (X) and AK Steel (AKS) both lost more than 60% last year despite posting a year-over-year rise in their earnings.

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Analysts are pessimistic

While 2019 started on a positive note for US steel stocks, we saw a selling spree last week. Now, U.S. Steel Corporation is negative for the year. Sell-side analysts’ pessimism is among the most prominent reasons behind the company’s sell-off. In March, Bank of America Merrill Lynch issued a bearish note on U.S. Steel Corporation. The brokerage saw the increase in US steel production capacity, which it termed “Steelmageddon” as a long-term bearish driver for US steel prices.

Bank of America

Last week, Bank of America analyst Timna Tanners doubled down on her bearish stance by downgrading U.S. Steel Corporation from “buy” to “sell.” Credit Suisse analyst Curt Woodworth downgraded U.S. Steel Corporation from “neutral” to “underperform” and lowered its target price from $21 to $13. Woodworth also pointed to the expected increase in US steel production capacity amid the domestic steel industry’s expansion projects.

The expected increase in the US steel production capacity, U.S. Steel Corporation’s higher capital expenditure over the next two years, peak steel market sentiments, and U.S. Steel Corporation’s weak competitive position compared to mini-mills like Nucor caused the downgrade in U.S. Steel Corporation stock.

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