U.S. Steel (X) Added to Focus List at JP Morgan, Allegheny Technologies (ATI) Removed from Focus List

(Updated - September 2, 2015 9:28 AM EDT)

U.S. Steel (NYSE: X) was maintained at Overweight with a price target of $28 and added JP Morgan's Fous List. Underweight rated Allegheny Technologies (NYSE: ATI) was removed from the Analyst Focus List.

Analyst Michael F. Gambardella sees a positive inflection point in steel fundamentals and he pointed out recently filed trade cases targeting unfairly traded hot-rolled sheet, cold-rolled sheet, and corrosion-resistant steel.

"In our view, we have hit a positive inflection point in near-term domestic steel fundamentals and the pending steel trade cases could act as positive catalysts to more than offset the headwind of a strong U.S. dollar. As the largest integrated domestic steel producer coupled with the company’s Carnegie Way transformation, X has significant leverage to an improvement in steel prices. We removed ATI from the AFL as we feel a significant portion of the downside risk we had been expecting has played out, although we remain Underweight the stock and continue to believe ATI’s earnings will remain under pressure from a challenging stainless steel market and strong dollar pressuring its High Performance exports," said Gambardella.

The analyst continued, "Several domestic steel producers, including X, recently filed trade cases targeting unfairly traded hot-rolled sheet, cold-rolled sheet, and corrosion-resistant steel. These pending trade cases cover nearly all carbon sheet products and a significant percentage of the U.S. sheet market supply (equivalent to about 15% or about the size of X’s domestic market share). In our view, we have hit a positive inflection point in near-term domestic steel fundamentals. While it is difficult to predict the outcome of these cases, they have the potential to lock out a significant share of domestic sheet supply which could drive up prices (and stocks) quickly and significantly. As the largest integrated domestic steel producer coupled with the company’s Carnegie Way transformation, X has significant leverage to an improvement in steel prices. While X is still negotiating its domestic labor contract, we believe a reasonable settlement will occur before the announcement of the preliminary duties on the first corrosion-resistant trade case in November."

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