Goldman Sachs Downgrades US Steel To Sell

For the second time in a week, a Wall Street analyst has downgraded a major U.S. steel stock. This time, it’s United States Steel Corporation X on the chopping block.

The Analyst

Goldman Sachs analyst Matthew Korn downgraded U.S. Steel from Neutral to Sell and lowered his price target from $17 to $11. Korn also made the following adjustments to his steel price targets:

• AK Steel Holding Corporation AKS reiterated at Sell, target dropped from $2.25 to $1.50.
• Reliance Steel & Aluminum Co RS reiterated at Neutral, target dropped from $96 to $93.
• Steel Dynamics, Inc. STLD reiterated at Buy, target dropped from $44 to $36.
• Nucor Corporation NUE reiterated at Buy, target dropped from $70 to $59.
• Stelco Holdings Inc STZHF reiterated at Neutral, target dropped from C$18 TO C$17.
• Schnitzer Steel Industries, Inc. SCHN reiterated at Neutral, target dropped from $27 to $25.

The Thesis

Less than a week after Bank of America downgraded Nucor, Korn said Tuesday weakening demand and plentiful supply are creating a drag on steel prices that will weigh on the steel stock group.

“Weakening demand crossed with stubbornly high output from domestic mills has dragged steel sheet prices down to their lowest levels since 2016, and recent moves by the Trump Administration to weaken the Section 232 tariffs have contributed to expectations of ample available supply in the US market,” Korn wrote in a note.

For U.S. steel specifically, Korn said lower steel prices will likely lead to additional earnings cuts and could even put pressure on the company’s bloated balance sheet. U.S. Steel recently announced a $1.2 billion investment in its Mon Valley Works facility that is being funded almost entirely by new debt. Korn is projecting $1.5 billion per year in capex for U.S. Steel from 2019 through 2021 versus just $645 million per year in operating cash generation.

Price Action

U.S. Steel shares traded around $12.78 at time of publication.

Related Links:

Bank Of America Double Downgrades Nucor Ahead Of 'Steelmageddon'

It's Been 14 Months Since Trump Said 'Trade Wars Are Good And Easy To Win'

Photo by Walter T. Palmer/via Wikimedia.