Morgan Stanley Offers Four Reasons To Buy US Steel

In a report published Tuesday, Morgan Stanley analyst Evan Kurtz offered four reasons why now is the time to buy shares of

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US Steel lowered its 2015 EBITDA guidance to $700 million to $900 million from a prior range of $1.1 billion to $1.4 billion. The revised guidance removes a "major overhang" on the stock, prompting Kurtz to state that the company's guidance is now "realistic" and "attainable." The analyst is projecting the company to report its EBITDA at the midpoint ($800 million) which assumes $190 million in new Carnegie Way savings, $200 million in short-term savings, $186 million in volume upside, a partial offset from a $695 million price headwind, and $410 million in estimated annualized one-time expenses in the first quarter that will reverse.

According to Kurtz, flat-rolled steel prices are bottoming, imports are falling, industry capacity utilization is rising, and service centers are closer to ending destocking. With that said, the industry is "inflecting positively," and US Steel will benefit from higher utilization in the bottom half of 2015. Moreover, this can be "quite impactful" due to operating leverage.

Kurtz is anticipating a flat-rolled trade case filing in the near future involving cold-rolled and/or coated sheet. Imports from China, Korea, Turkey and European Union member states could be targeted. In addition, the possibility of US government trade enforcement reforms would make antidumping cases easier to pursue and represents a "bull case" scenario for US Steel.

Finally, Kurtz noted that iron ore prices have rallied and could persist in the near-term on stronger seasonal demand, Chinese stimulus, and peaking US dollar strength. Naturally, stronger iron ore prices will boost sentiment around US Steel as the company is vertically integrated.

Shares of US Steel are Overweight rated with a $35 price target.