U.S. Steel Shares Fall Because Analyst Just Said Good Times End
Steel prices have seen an epic tear, raising the shares of companies that produce the metal. Wall Street, however, is starting to worry about falling prices. Inventories tied to a product always struggle when the prices of that product weaken.
Morgan Stanley analyst Carlos De Alba demoted on Monday
United States Steel
(ticker: X) stock to the equivalent of Sell from Hold. It reduced its target price by more than 50%, from $ 35 to $ 17 per share.
De Alba sees steel prices peak this quarter. Tight supplies have pushed the price of hot-rolled steel coil – a benchmark product – to about $ 1,900 per tonne, up about 200% over the past 12 months. This compares to an average of around $ 600 per tonne in pre-pandemic 2019, and around $ 1,950 in September. Current prices represent a tiny drop, but one that worries analysts and investors.
the stock, entering Monday, was down about 5% over the past month. Shares are down about 28% from their 52-week August high of $ 30.57.
US Steel shares fell another 3.3% in pre-market trading.
Dow Jones Industrial Average
futures were down 0.4% and 0.3% respectively.
US Steel’s stock, including the pre-market decline, is still up about 30% year-to-date. The stock, however, is trading at around three times the expected earnings per share for 2022 earnings. This is incredibly low, considering the S&P is trading around 20 times. The low valuation is a sign that investors do not expect this level of steel price, or profitability, to continue into the future.
Other analysts also seem to come to this conclusion. Goldman Sachs analyst Emily Chieng downgraded US Steel stock to sell from Hold earlier in October. She lowered her price target from $ 34 to $ 21 per share.
Today, about 31% of analysts covering US Steel interest rate stocks buy and about 39% sell interest rate stocks. The average purchase ratio of S&P 500 stocks is around 55%. The average Sell-rating ratio is less than 10%.
Analysts’ average price target for US Steel stock is still around $ 30 per share, but has fallen to around $ 32 per share in the past three months.
Write to Al Root at [email protected]