Credit Suisse On U.S. Steel: 'Shares Are Very Undervalued,' Correction 'Overdone'

Credit Suisse’s Curt Woodworth believes United States Steel Corporation X shares are “very undervalued,” and the sharp pullback, driven by the widely anticipated hot rolled sheet correction, was overdone.

Woodworth maintains an Outperform rating on the company, with a price target of $29.

Market Too Negative

“Based on our investor conversations recently, we believe the market has become way too negative on domestic flat rolled fundamentals, which overall remain strong despite various headwinds,” the analyst explained.

Related Link: Steel Dynamics Price Target Trimmed At CLSA On Weak Guidance

Woodworth believes U.S. Steel has meaningful upside potential into 2017, driven by the continued decline in conversion costs, the company realizing material ASP increases in its annual contract business, inflection in OCTG as the inventory excess is worked through and benefits from higher prices for spot and contract tons in Europe.

Some Other Drivers

“The significant increase in Australian coking coal prices is very bullish for US steel scrap prices in our view and should result in cost push HRC inflation near $40–50/ton in 4Q-16, effectively closing the arbitrage window into the US,” the analyst went on to say.

In addition, Woodworth believes that the petition filed on September 21 by U.S. producers, against China, is likely to severely limit Vietnamese exports of CRC and coated products.

In Friday's pre-market session, U.S. Steel was up 0.99 percent at $18.38.

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