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Axiom Research Bearish On United States Steel Corporation, Sees Demand Problems Weighing On Inventory

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Axiom Research sees risk ahead for United States Steel Corporation (NYSE: X). The research firm has shares rated as Sell with a price target of $21.00.

Citing demand and supply, Axiom said steel demand is up 5.6 percent year to date versus supply up 11.2 percent year to date. The driver for this could be the excess inventory buffer created as a response to supply scares in the first half of 2014.

Axiom is admitting in its Wednesday note that it has been wrong about U.S. Steel so far in 2014, but after analyzing the company again in an effort to look "for a reason to become more constructive on the name – outside of the direction the stock is moving," Axiom remains negative.

Bulls may be missing the key points, Axiom highlights:

"...when considering the inherent volatility in X’s earnings to shifts in U.S. HRC spot prices, elevated by a prodigious resiliency in U.S. HRC spot prices (down -1.2% YTD), despite the fall in both iron ore (down -35.4% YTD) & coking coal prices (down -21.1% YTD), as well as the data points overwhelmingly suggestive of an inventory buffer build in response to the threat of limited steel availability."

The inventory buffer is not expected to be able to be sufficiently drained by increasing construction activity.

As for auto sales helping drive demand, which in turn would be expected to drain steel supplies, Axiom wrote "we infer to mean auto sales, as a component to steel demand, are actually on the decline when compared to prior year growth rates."

U.S. Steel is facing a tough quarter, and with an enlarged inventory demand, isn't expected to impact those levels materially.

Shares traded recently at $39.34, up 3.1 percent.

Latest Ratings for X

Oct 2015BarclaysMaintainsEqual-weight
Oct 2015Deutsche BankMaintainsBuy
Sep 2015JefferiesMaintainsHold

View More Analyst Ratings for X
View the Latest Analyst Ratings

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