Time For U.S. Steel Bulls To Bend?

Analysts at Cowen are throwing in the towel on United States Steel Corporation X due to a lack of earnings visibility following its earnings report last week.

Cowen's Novid Rassouli downgraded U.S. Steel's stock from Outperform to Market Perform with a price target slashed from $60 all the way down to $21. The analyst acknowledged that his original bullish thesis was based on improvements in the company's Tubular operations and its Flat-rolled operations in the U.S. and Europe would remain at the very least study.

However, Rassouli noted that operational issues at the U.S. Flat-rolled segment prompted management to undertake a "dramatic revitalization at one of the most profitable points in the cycle." Meanwhile, the company's European operation has remained healthy but the woes in the U.S. operation can't be ignored.

The analyst is now forecasting U.S. Steel's flat-rolled EBITDA to come in at around $500 million this year and around $600 million next year. This represents a decrease from a prior estimate of $900 million in 2017 and $1 billion in 2018.

With that said, the analyst believes it's now "impossible" to defend the stock as it is unclear the duration or shape of the revitalization. In fact, a three to four year revitalization period could cost $1 billion and create periods of uncertainty.

"As the company embarks on the long term revitalization program for the U.S. Flat-rolled assets, we expect there to be growing pains along the way," the analyst emphasized. "These growing pains will likely lead to operational hiccups, leading to lower-than-expected shipments."

Bottom line, Rassouli sees "significant risk" to his bullish thesis and investors should find other steel stocks that are better positioned to participate in a steel upcycle.

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