Citi Previews Steel Sector Earnings, Says US Steel May Outperform

With second-quarter North American steel earnings just around the corner, Citigroup analyst Alexander Hacking recently provided investors with a brief preview of what they should expect. While Citi isn’t anticipating industry-wide strength for steel stocks, Hacking said United States Steel Corporation X could be a standout performer.

U.S. Steel’s first-quarter results were weighed down by seasonable weakness and one-time charges that should have no impact on its Q2 results. U.S. Steel will also likely provide more details about its ongoing asset revitalization initiative, which Hacking said could be a positive for the stock.

But while U.S. Steel could be on the upswing after it reports, Citi expects AK Steel Holding Corporation AKS earnings to decline in Q2, as higher maintenance and raw materials costs will weigh on the company’s bottom line.

Iron ore and coking coal prices could also offset positive demand impacts for Steel Dynamics, Inc. STLD and Nucor Corporation NUE, Hacking wrote. He said risk/reward is currently balanced for both stocks.

A wildcard in the steel industry at the moment is President Donald Trump’s Section 232 investigation into steel and aluminum imports. However, Hacking cautioned investors about making assumptions about the impact of the investigation.

“Section 232 could generate upside, but we are cautious about overpaying for this trade, which may have limited duration,” he wrote.

Related Link: Catalysts On The Horizon For Metals & Mining Group; Deutsche Bank Upgrades, US Steel, AK Steel To Buy

In June, Deutsche Bank upgraded U.S. Steel and AK Steel to Buy on expectations that Section 232 will help underlying U.S. steel demand and potentially limit imports.

Deutsche Bank also named Buy-rated Steel Dynamics as a top stock pick in the space.