Today, UBS downgraded U.S. Steel from “neutral” to “sell” and lowered its target price from $22 to $10. U.S. Steel has faced several downgrades over the last week despite posting better-than-expected earnings and revenues. The stock had risen more than 17% after its earnings beat.
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UBS isn’t the only brokerage that’s turned bearish on U.S. Steel (X). Yesterday, Morgan Stanley lowered U.S. Steel’s price target from $21 to $19. Last week, BMO lowered U.S. Steel’s target price from $23 to $17, while Jefferies lowered its target from $24 to $18. J.P. Morgan, which was quite bullish on U.S. Steel after President Trump imposed Section 232 tariffs last year, also lowered its target price from $33 to $31.
It’s worth noting that despite the support from tariffs, U.S. Steel as well as other steel companies like AK Steel (AKS) have seen a selling spree and are trading much below the price levels when the tariffs were mooted last year.
U.S. Steel is investing significantly over the next three years in revamping its plants, which could mean negative free cash flows between 2019 and 2021. While U.S. Steel expects these investments to structurally improve its EBITDA over the long term, markets don’t seem too impressed. Previously also, U.S. Steel cited millions of dollars of annual savings from its Carnegie Way program. However, the impact of these savings wasn’t too visible in its earnings.
Currently, U.S. Steel’s expected cash burn and uncertainty over how much benefits the company would realize from its investments seems to be bothering investors. Read Why U.S. Steel Corporation Could Face Cash Woes for more analysis.