Tuesday, Wolfe Research raised its rating on US Steel (NYSE:X) stock from Peer Perform to Outperform, setting a price target of $46.00. The firm cited the relative inexpensiveness on a standalone basis despite estimates that fall below the company's own forecasts.
The upgrade comes amid President Biden's clear stance against the proposed acquisition of US Steel by Nippon Steel, which has seemingly lessened the likelihood of the deal's completion.
The analyst at Wolfe Research noted that the opposition from President Biden, coupled with previous resistance from former President Trump, makes it unlikely for US Steel to accept any alternative offers below the new $46 price target. The target is based on a valuation of 6.5 to 7 times the estimated EBITDA for 2024/2025, even with projections that are more conservative than the consensus.
Wolfe Research also pointed out the potential for Nippon Steel to revisit the takeover bid post the U.S. presidential election, which could offer an upside to the newly established price target. The firm's analysis suggests that US Steel's shares are currently trading at an attractive valuation compared to its peers, which are seen with much higher multiples.
The firm anticipates an improvement in US Steel's free cash flow (FCF) by 2025, following a period of unusually high capital expenditures. This projection takes into account the expected ramp-up of an additional 3 million tons per year and electrical steel capacity at the company's Big River2 facility in the year 2025.
InvestingPro Insights
In light of Wolfe Research's recent upgrade of US Steel (NYSE:X) and the setting of a new price target, it's worth considering additional insights from InvestingPro. With a market capitalization of $9.12 billion and a trailing twelve-month P/E ratio of 8.79, US Steel appears to offer an intriguing value proposition. The company's gross profit margin stands at 12.76% for the last twelve months as of Q4 2023, which, while not the strongest in the industry, suggests a level of profitability that may be appealing to investors.
One of the InvestingPro Tips that stands out is the company's consistent history of dividend payments, having maintained them for 34 consecutive years, which could signal a commitment to returning value to shareholders. Additionally, despite a challenging environment, analysts predict the company will be profitable this year. This aligns with the sentiment expressed by Wolfe Research regarding the attractiveness of US Steel's valuation compared to its peers.
For those looking to delve deeper into the financial health and future prospects of US Steel, there are additional InvestingPro Tips available on the platform. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and uncover more strategic insights that could inform your investment decisions.
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