UPDATE: Credit Suisse Sees Opportunity for Change at US Steel (X); Stock Upraded to Outperform
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Credit Suisse upgraded US Steel (NYSE: X) two notches from Underperform to Outperform with a price target of $50.00. Analyst Nathan Littlewood noted potential for transformational change at the company, and he called the stock as one of the most intriguing stories in the US steel sector.
"The company's raw material cost advantages as well as privileged steel price environment should position X as one of the most profitable steel makers in the world," said Littlewood. "Turning X's strategic advantages into earnings is something that the company has historically struggled to do, but we have reason to believe that this may be changing. Implementation is complicated, but success could mean a multi-billion dollar earnings opportunity. A specific example is X's ability to produce Direct Reduced Iron using vertically integrated iron ore; which we see as providing this company the ability to produce some of the lowest cost steel in North America; a stark change relative to the status quo."
Littlewood also thinks the stock will benefit as the macro environment improves.
"The stars are currently aligning: 1) domestic outages and demand strength is keeping the market tighter than we'd expected, 2) Trade cases are enabling the US market to decouple from ROW issues (China slowdown, global overcapacity etc) and 3) consolidation should bring with it better pricing discipline and potentially supply side rationalization," she said.
Shares of US Steel closed at $37.81 yesterday.
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