UPDATE: UBS Cuts US Steel (X) to 'Sell' on Concerns About Sustainability of Free Cash Flow

(Updated - April 8, 2016 7:42 AM EDT)

UBS downgraded US Steel (NYSE: X) from Neutral to Sell with a price target of $12. Analyst Matt Murphy doesn't expect US Steel to achieve sustainable free cash flow and he questioned if it has enough liquidity to withstand an extended bear market.

"We believe X is unlikely to generate sustainable free cash flow under current steel prices and under our steel price forecast. We believe cost cutting and working capital reductions have helped to improve X's cash flow position, however these improvements must ultimately diminish, leaving X in a long-term cash burn position. Given the company's history of burning cash as long as HRC prices are below $500/t, we would anticipate X to be generating negligible free cash flow under our steel price forecast," said Murphy.

"Despite its $2.4B in net debt, we believe X has sufficient liquidity to withstand the low steel price and utilization environment in the US over the near-term. X's debt package is covenant light and X still has additional secured debt capacity if it wishes to extend its repayment schedule. However, should weak market conditions persist in the medium-term, we become increasingly concerned about X's ability to generate sufficient cash flow to service and pay down debt. X expects to finish 2016 with $2.2B in liquidity but we note that the debt is due for repayment from 2017 to 2022. X remains highly levered and has had its net debt balance continue to creep up over recent quarters," added the analsyt.

For an analyst ratings summary and ratings history on US Steel click here. For more ratings news on US Steel click here.

Shares of US Steel closed at $16.01 yesterday.

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