On Thursday, Morgan Stanley (NYSE:MS) maintained its Overweight rating on US Steel (NYSE:X) shares with a steady price target of $49.00. The firm's position is based on the company's third-quarter guidance, which aligns with or surpasses market expectations, contrasting with the lower-than-anticipated guidance from peers such as Nucor Corp (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD) Inc.
US Steel anticipates an adjusted EBITDA of approximately $300 million for the third quarter of 2024, consistent with previous forecasts from its second-quarter earnings but higher than the Visible Alpha consensus of $284 million and Morgan Stanley's own estimate of $283 million. The company's adjusted earnings per share (EPS) guidance ranges from $0.44 to $0.48, with the midpoint exceeding both Visible Alpha's consensus of $0.32 and the firm's estimate of $0.30.
The company's flat-rolled segment is expected to see a quarter-over-quarter decrease in adjusted EBITDA due to lower average selling prices, although this is anticipated to be partially mitigated by efforts to reduce operating costs. Conversely, the mini mill segment is projected to experience a decline in EBITDA, reflecting its greater exposure to monthly contracts and spot prices. This will be somewhat compensated by reduced raw material costs.
During the quarter, US Steel is preparing for approximately $40 million in startup and one-time construction costs, largely associated with the new Big River 2 facility, which is expected to commence operations in the fourth quarter. Additionally, the company has idled Blast Furnace #1 at USSE following a planned 30-day outage in response to softening demand.
Despite market challenges, US Steel's European segment is set to post a quarter-over-quarter increase in adjusted EBITDA, largely due to a favorable adjustment in CO2 allowances. However, the Tubular segment is projected to see a decline in EBITDA due to lower average selling prices.
US Steel's CEO, David B. Burritt, reaffirmed the company's confidence in the approval of their pending transaction, following U.S. regulatory reviews, with the aim to finalize the deal before the year's end.
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