Jefferies initiates “hold” rating on Algoma Steel as tariffs overshadow transforma

Investing.com -- Jefferies in a note dated Friday has initiated coverage on Algoma Steel Group Inc. with a “hold” rating and a price target of C$6 per share, representing 6% upside from the current C$5.65, citing tariff pressures that overshadow the Canadian steelmaker’s strategic transformation.

The brokerage projects an EBITDA of negative C$253.7 million for 2025 and negative C$128.6 million for 2026, compared to C$22.4 million in 2024, with earnings per share expected at negative C$6.43 in 2025 and negative C$2.27 in 2026.

"The bottom line is that Canadian steel is simply uneconomic to US buyers at current tariff levels, and the domino effect of increased supply in the Canadian market has led Algoma to explore liquidity options to support operations during its transformation to EAF steelmaking," the analysts said.

Algoma’s share price has fallen approximately 60% in 2025 due to tariff impacts, contrasting with an average 45% increase for U.S. steel majors.

The current 50% Section 232 tariff on Canadian steel has caused Canadian price realizations to fall as much as 40% below U.S. levels.

The company is most affected by these tariffs as U.S. shipments accounted for as much as 60% of total volumes pre-tariffs.

During the third quarter of 2025, Canadian net sales realizations were up to 40% lower than U.S. levels, contributing to an estimated C$32 million revenue impact, while tariff-related costs on U.S.-bound volumes totaled C$89.7 million in the second quarter.

Following Cleveland-Cliffs’ acquisition of Stelco, Algoma is now the largest publicly listed Canadian steel producer based on capacity and recent year shipments of approximately 2.2 million short tons.

The company is transitioning from blast furnace-basic oxygen furnace to electric arc furnace technology through a C$990 million investment that recently achieved first production.

The EAF transition is anticipated to increase annual EBITDA by approximately C$150 million through reduced conversion costs and is expected to decrease annual carbon emissions by 70%. Jefferies forecasts EBITDA of C$272 million in 2027 and C$478 million in 2028.

Algoma has secured C$500 million through the federal Large Enterprise Tariff Loan program and increased its asset-based lending facility by US$75 million.

The company suspended its US$0.05 per share quarterly dividend and announced 1,000 employee layoffs with early closure of blast furnace and coke-making operations in early 2026.

Capital expenditures are expected to decline from C$421 million in 2024 to C$338 million in 2025 and C$120 million in 2026, with normalized sustaining capital expenditures projected at C$100-120 million annually.

Jefferies’ risk-adjusted target is based on a 2027-2028 EV/EBITDA multiple of 5x, compared to 6.8x for EAF producers Nucor, Steel Dynamics, and Commercial Metals Company.

Using discounted cash flow analysis assuming an eventual North American trade agreement, the firm derives a fair value close to C$12 per share, though the Hold rating reflects current tariff uncertainties.

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