A second analyst has downgraded U.S. Steel stock after Goldman Sachs lowered its rating from "neutral" to "sell" following the first decline in steel prices in more than a year.
Morgan Stanley double downgraded the steelmaker's stock from underweight to overweight. It slashed its price target for U.S. Steel from $35 a share to just $17 a share, predicting steel prices are close to peaking sometime in the next quarter.
Hot-rolled steel prices have tripled to more than $1,900 a ton over the last year as a result of industry consolidation, tariffs of 25% on most foreign-made steel and tight supplies during the economic recovery from the coronavirus pandemic. But steel prices have dropped slightly after peaking at $1,995 a ton last month, according to Steel Market Update.
Buoyed by the surge in prices, strong demand and otherwise favorable market conditions, shares of Pittsburgh-based U.S. Steel, one of Northwest Indiana's largest employers, have risen 30% over the past year.
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But Wall Street analysts have begun to predict the stock price will start to fall along with steel prices that may have already peaked with only one other way to go. Goldman Sachs forecasted earlier this month that "higher capital intensity will drive negative free cash flow momentum" and that "there will be a correction in the coming months as additional import volumes arrive and new capacity begin operations."
One analyst, David Colman with Argus, remains bullish on the steelmaker.
He upgraded shares from hold to buy last week after U.S. Steel's stock price plunged by 25%. Argus set a $25 per share price target, saying U.S. Steel's business fundamentals remained strong, the demand for steel was still elevated and the company was making efforts to improve its balance sheet.
Global economic conditions continue to improve, which will continue to drive higher steel prices, he noted. U.S. Steel also has the cash to grow through acquisition, such as its recent purchase of Big River Steel in Arkansas, he observed.
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