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U.S. Steel Corporation: Has the Storm Settled Down?

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May. 10 2019, Published 8:08 a.m. ET

U.S. Steel Corporation

U.S. Steel Corporation (X) has been on a whirlwind during the last few trading sessions. Last week, the stock fell sharply on May 2. The company unveiled its new capex plan. However, the stock rallied sharply the next day. U.S. Steel Corporation’s earnings beat the estimates by a wide margin. This week, U.S. Steel Corporation has come under pressure amid the broader market weakness. President Trump’s trade rhetoric against China has led to a sell-off in markets. Metal and mining stocks have come under pressure. The escalating trade war could jeopardize China’s economic recovery. China is the biggest consumer of most metals.

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Downgrades

To make things worse for U.S. Steel Corporation, it has seen a flurry of downgrades. On May 8, UBS downgraded U.S. Steel Corporation from “neutral” to “sell” and lowered its target price from $22 to $10. Morgan Stanley lowered U.S. Steel Corporation’s target price from $21 to $19. Last week, BMO lowered U.S. Steel Corporation’s target price from $23 to $17, while Jefferies lowered its target price from $24 to $18.

There are a few factors that seem to be making analysts bearish on U.S. Steel Corporation. First, US steel prices have shown weakness, which could hurt US steel companies’ earnings in the coming quarters. European steel markets have also been weak. U.S. Steel Corporation has a significant presence in Central Europe. The company cited European operations as a headwind during its first-quarter earnings call.

Capital expenditure plan

U.S. Steel Corporation’s massive investment plans are making markets apprehensive due to the current economic situation. Also, U.S. Steel Corporation doesn’t have a strong balance sheet. The company could generate negative free cash flows from 2019 to 2021. U.S. Steel Corporation’s operating cash flows might not keep pace with its aggressive capex plans.

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