On Wednesday, BMO Capital Markets adjusted its stance on US Steel (NYSE:X), upgrading the stock from Market Perform to Outperform. The firm also increased its price target for the company's shares to $45.00, up from the previous target of $43.00.
The upgrade comes amid uncertainty surrounding the Nippon/US Steel transaction, which is facing significant hurdles. The United Steelworkers (USW) union and political pressures contribute to doubts that the deal will be finalized in its current state. Despite these challenges, BMO Capital believes that US Steel's stock is undervalued.
BMO Capital highlights that US Steel's investments in Mini-Mill/Electric Arc Furnace (EAF) assets are expected to enhance profitability and free cash flow generation throughout the business cycle. The firm suggests that the market has not fully recognized the potential profitability increase from these investments.
Additionally, when compared to its industry peers, US Steel's valuation appears favorable. This relative undervaluation, in conjunction with the anticipated benefits from its strategic investments, underpins BMO Capital's positive outlook on the stock.
The revised price target of $45.00 reflects a modest increase from the prior target, signaling BMO Capital's confidence in US Steel's future performance despite the ongoing transactional uncertainties. The firm's commentary indicates a belief in the intrinsic value of US Steel's operational advancements and competitive positioning.
In other recent news, United States Steel (NYSE:X) Corporation and Nippon Steel Corporation have received necessary regulatory approvals from non-U.S. jurisdictions for their proposed transaction. These approvals are significant strides towards finalizing the deal, which has already garnered overwhelming support from U.S. Steel's shareholders. Amidst this, U.S. Steel's Board of Directors addressed misinformation regarding the transaction, emphasizing its benefits for investors, employees, and the American steel industry.
On the analyst front, Jefferies initiated coverage on U.S. Steel with a Buy rating, citing the company's growth potential and valuation appeal. Concurrently, Morgan Stanley upgraded its rating for U.S. Steel to Overweight, signaling confidence in the company's transformational investments.
In other developments, U.S. Steel declared a dividend of $0.05 per share for its stockholders. The company continues to implement its Best for All® strategy, focusing on customer-centric practices and sustainable operations.
InvestingPro Insights
In light of BMO Capital Markets' recent upgrade of US Steel, InvestingPro data and tips offer additional perspectives on the company's financial health and stock performance. With a market capitalization of $7.92 billion and a price-to-earnings (P/E) ratio of 9.02, US Steel appears to be trading at a valuation that could be seen as attractive, especially when considering the adjusted P/E ratio over the last twelve months as of Q1 2024 is even lower, at 7.86.
From a profitability standpoint, US Steel has been profitable over the last twelve months, with a gross profit of $2.28 billion and a gross profit margin of 12.86%. This aligns with BMO Capital's view of US Steel's investments potentially leading to increased profitability.
An InvestingPro Tip highlights that the company's stock price movements are quite volatile, which may be of interest to investors looking for opportunities in price fluctuations. Additionally, US Steel has maintained dividend payments for 34 consecutive years, demonstrating a commitment to returning value to shareholders even through various market cycles.
For investors seeking further insights and tips, there are additional InvestingPro Tips available, which can be found on the dedicated US Steel page at InvestingPro. By using the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more valuable investment information.
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