Al Root
U.S. Steel stock rose Monday after picking up a new bullish call on Wall Street. The recommendation had little to do with the company's potential merger with Nippon Steel. It's all about the U.S. economy.
Jefferies analyst Christopher LaFemina initiated coverage of U.S. Steel with a Buy rating and a $45 price target. The economic outlook for American metals and mining stocks has improved, he wrote, partly due to all the investment spending happening with the Infrastructure Investment and Jobs Act, the CHIPS Act, and the Inflation Reduction Act.
U.S. Steel stock was up 1.3% in premarket trading at $36.37 while S&P 500 and Nasdaq Composite futures were up 0.1% and 0.2%, respectively.
It's a fundamental call. It's been hard to make a fundamental call on U.S. Steel stock these days. The company is still entangled in a merger with Japanese steel giant Nippon, which has agreed to pay $55 a share for the American steel maker. That deal, however, faces substantial opposition from U.S. politicians on both sides of the aisle in Washington.
Politicians believe U.S. Steel should be American-owned. Nippon, however, is a larger, more profitable steel company with leading technology and has committed to keeping the American headquarters of the combined entity in Pittsburgh.
Barron's recently wrote positively in April about U.S. Steel believing that shares could work no matter what happened with Nippon. Since the article appeared, U.S. Steel stock has dipped about 8%. Some resolution of the Nippon deal eventually will be needed to break the stock out of its recent range.
Along with a Buy on U.S. Steel, LaFemina put a Buy rating on Cleveland-Cliffs. His price target for Cliffs is $22 a share. LaFemina rates shares of Nucor and Steel Dynamics Hold. His Nucor price target is $190 a share; his Steel Dynamics target is $150.
Cliffs stock was up 0.9% in premarket trading at $17.67. Nucor and Steel Dynamics stocks were flat. Nucor closed on Friday at $172.12. Steel Dynamics shares closed at $133.93.
Valuation is one reason for the relative ratings. Nucor and Steel Dynamics shares trade for about 13 times estimated 2025 earnings, according to FactSet. U.S. Steel and Cliffs shares trade for about 11 times.
With the new Buy on Cliffs, about 46% of analysts covering the stock rate shares Buy. The Buy-rating ratio for U.S. Steel is 36%. The ratios for Nucor and Steel Dynamics are about 44% and 14%, respectively. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Steel stocks haven't been popular on Wall Street lately. That's been a sound call. Coming into Monday, shares of Cliffs, Nucor, and Steel Dynamics were down about 1% on average in 2024.
U.S. Steel stock has fallen about 26%, but most of that decline came as opposition to the Nippon deal grew.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 20, 2024 08:01 ET (12:01 GMT)
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