Bank Of America Double Downgrades Nucor Ahead Of 'Steelmageddon'

On May 14, U.S. President Donald Trump credited hit tariffs on imported steel with rebuilding the U.S. steel industry, which he said is now “booming.” However, shares of North Carolina steel producer Nucor Corporation NUE are down 25.9 percent in the past year, and one analyst double downgraded the stock on Friday.

The Analyst

Bank of America analyst Timna Tanners downgraded Nucor from Buy to Underperform and lowered her price target from $68 to $50. Tanners also made the following price target changes to steel stocks under her coverage:

AK Steel Holding Corporation AKS reiterated at Underperform, target dropped from $1 to $1.
Commercial Metals Company CMC reiterated at Underperform, target dropped from $18 to $13.
Reliance Steel & Aluminum Co RS reiterated at Neutral, target dropped from $98 to $90.
Steel Dynamics, Inc. STLD reiterated at Buy, target dropped from $40 to $30.
United States Steel Corporation X reiterated at Underperform, target dropped from $12 to $8.

The Thesis

Tanners said Nucor will likely be one of the first victims of what she calls a “steelmageddon” supply glut that will persist through 2021. As a result of oversupply concerns, Bank of America cut its 2022 benchmark hot rolled coil steel price forecast from $590/ton to just $475/ton.

“Given a worse 2019E price view, risks of peak demand, and a looming supply glut in 2020-2021E, we see limited catalysts for the group and expect little incrementally positive from its June 20 investor day,” Tanners wrote in the note.

Tanners said the supply glut will hurt all U.S. steel companies, but Steel Dynamics will be most immune given its attractive valuation, strong balance sheet, and near-term expansion opportunities.