Market Overview

Morgan Stanley Moving To The Sidelines On U.S. Steel

  • Shares of United States Steel Corporation (NYSE: X) have declined 55.14 percent in the past six months, touching a low of $9.91 on October 1.
  • Morgan Stanley’s Evan L. Kurtz has downgraded the rating on the company to Equal-weight, while lowering the price target from $30 to $19.
  • Following the weaker Q3 results reported by the company, Kurtz prefers to move to the sidelines, given that the risk/reward on the stock now appears more skewed to the downside.

Analyst Evan Kurtz mentioned that U.S. Steel reported weaker-than-anticipated Q3 results, driven by a $20 per ton miss on costs. The company also lowered its 2015 EBITDA guidance below the prior estimate to $225 million.

“We have now gone from a positive base case to bear case skew, to a negative skew. In addition, despite our view that US steel prices will begin to recover in 1Q16, and average $510/t for the year, our new 2016 EBITDA estimate of $410m falls below consensus of $737m,” Kurtz stated.

Although prices are expected to recover in 2016, if the timing or magnitude of this recovery misses expectations, there could be downside to the stock.

In fact, Kurtz believes that Steel Dynamics, Inc. (NASDAQ: STLD) is a better stock to own in the current market environment. According to the Morgan Stanley report, “As a low-cost scrap based steel producer, STLD has been less affected by the recent scrap driven price declines.”

Latest Ratings for X

Sep 2019MaintainsUnderperform
Sep 2019DowngradesOutperformUnderperform
Sep 2019Initiates Coverage OnOverweight

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Posted-In: Evan L. Kurtz Morgan StanleyAnalyst Color Downgrades Price Target Analyst Ratings


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