US Steel Transformation Will Lead To Major Value Creation, Says Bullish Analyst

United States Steel Corporation X is reportedly involved in a dispute with Cleveland-Cliffs Inc. CLF around a confidentiality agreement after receiving an offer to acquire the company.

US Steel is undergoing a rapid transformation, expanding its EAF (Electric Arc Furnace) capabilities and downstream offerings, according to Morgan Stanley.

The US Steel Analyst: Carlos De Alba upgraded the rating for US Steel from Equal-Weight to Overweight, while raising the price target from $25 to $40.

The US Steel Thesis: The company’s state-of-the-art 3.0mtpa Big River 2 (BR2) mini mill is expected to come online in 2024, “which will nearly double its EAF steelmaking capabilities,” De Alba said in the upgrade note.

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“Moreover, US Steel is increasing its presence in downstream products by constructing a 325ktpa galvanizing line and a 200ktpa non-grain-oriented (NGO) electrical steel line in conjunction with BR2,” the analyst stated.

“We see these investments leading to robust EBITDA growth of $0.6bn over three years ($2.2bn in 2023e, rising to $2.8bn in 2025e) and free cash flow expansion of $2bn in the same period (-$0.4bn in 2023e, rising to $1.6bn in 2025e),” he added.

X Price Action: Shares of US Steel were up 0.25% to $32.56 at the time of publication Monday.

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