UPDATE: JPMorgan Downgrades Mechel to Underweight from Neutral, $1.40 PT

In a report published Tuesday, JPMorgan analyst Roman Gorokhov downgraded Mechel OAO

to Underweight from Neutral, with a $1.40 price target. According to the report, Due to high leverage, negative 2013-14E FCF forecast and adverse sector outlook, analysts are cutting MTL's end 2014 price target to $1.40/sh, downgrading its rating to UW from Neutral. As MTL could potentially be left at the mercy of its creditors and the Russian state if it fails to refinance, high risk is seen while excessive stock volatility is expected. “With expectations of negative EPS in 2013-14E, the odds of 2013-14E dividend payment on pref stock (entitled to 20% of net income) are extremely low,” the report noted. “Without attractive dividends and sub-par liquidity ($0.15 mn, ADV 12M, COB 20 Jan'14, Bloomberg), the discount gap between Mechel ordinary and pref stock should widen, we consider. We cut our end-2014 MTL/P PT to $0.30/sh and remain UW.” Some highlights from the report included: -Lowering output forecast on intensive asset divestment -Plugging-in negative coal pricing dynamics -Negative FCF gives no room for any debt reduction in 2013-14E MTL closed Friday at $2.22.