A Long-Time US Steel Bear Is Impressed With New CEO, But Not With Stock

United States Steel Corporation X’s new CEO Dave Burritt might not make the stock a Buy Thursday, but his long-term vision for the company could have it repositioned for growth in the years ahead. After speaking with Burritt about his strategy, Axiom analyst and long-time U.S. Steel bear Gordon Johnson said he was impressed by Burritt’s plan.

“More specifically, according to Mr. Burritt, while former CEO Mario Longhi was focused on geopolitical goals (i.e., lobbying leaders in Washington DC for protectionist relief), he will spend his time improving the quality, yield, personnel, & overall operations of X’s many different production facilities,” Johnson wrote on Thursday.

Related Link: Iron Ore Pricing 201: Current Spot Pricing Suggests Further Downside

U.S. Steel is in the middle of a long-term asset revitalization strategy, a transition that Johnson estimates could take longer than three years and cost more than $1.1 billion to complete. In the meantime, he urges investors to stay away from the stock.

In the near term, Johnson believes revitalization expenses will likely exceed the company’s $300 million guidance, resulting in lower-than-expected EBITDA in 2017. Earnings could take another big hit in 2018, as Burritt is reportedly targeting 2019 for completion of the revitalization plan. He also is anticipating major tailwinds in 2019 from a bipartisan infrastructure investment bill that is passed by Congress prior to the 2018 midterm elections.

U.S. Steel rallied following the 2016 election on the hopes that the Trump administration would increase infrastructure investment. However, the rally fizzled in 2017 as investors realized that the benefits of any government spending would likely come years down the road.

For now, Axiom maintains a Sell rating on U.S. Steel and a $14 price target for the stock.

At last check, shares of US Steel were down 3.87 percent at $19.88.