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US Steel Gets Price Target $1 Off Street High At Citi

United States Steel Corporation X has undertaken a new strategic initiative known as The Carnegie Way, through which it aims to improve its balance sheet strength. Citi’s Alexander Hacking initiated coverage of the company with a Buy rating and a price target of $27.

“The sector is entering a stronger-for-longer profit cycle, in our view, which could stretch into 2018,” analyst Hacking wrote. He named US Steel is the top pick to play near-term upside in the sector, adding that the company currently has “the highest operating leverage, highest short interest and most upside to consensus estimates.”

Cost Reductions

“US Steel is looking to turnaround their historical underperformance via their new strategic initiative,” Hacking mentioned. The Carnegie Way is led by new CEO Mario Longhi and focuses on achieving profitability by lowering costs, improving mill performance and getting closer to customers.

Although the lowering of operating rates and closed or idled facilities in the current environment have resulted in tough comps, “there has been a clear trend lower in Flat-rolled and European reported unit costs over the past two years, suggesting real costs savings are being realized,” the analyst pointed out.

Improving Steel Prices

Apart from cost reductions, rising steel prices have boosted the company’s recent results. Annul contracts, which represent about 40 percent of flat-rolled shipments, are likely to be reset at higher prices in early 2017. Hacking also expects US Steel to generate positive FCF in 2016-2017.

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DateFirmActionFromTo
Aug 2016KeyBancDowngradesSector WeightUnderweight
Aug 2016JefferiesUpgradesUnderperformHold
Jul 2016JefferiesMaintainsUnderperform

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