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Gordon Johnson Warns US Steel Likely To Cut Guidance Again

Gordon Johnson Warns US Steel Likely To Cut Guidance Again
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Axiom Senior Analyst Gordon Johnson expects a significant cut in guidance for United States Steel Corporation (NYSE: X) in late July or early August.

When using "a 90% confidence interval, over the 4 observation periods available since X changed the way it guided EBITDA 1/26/16, on average, our approach predicted X’s forward EBITDA guidance within 96% of the guided number," Johnson said in a new note. This approach leads to a 28 percent guidance cut.

A few of the factors driving the EBITDA guidance include spot prices, raw material costs and customer demand, which are all trending in negative directions for U.S. Steel. Additionally, rig counts continue to fall, and Johnson doesn't expect this number to suddenly increase in the near future.

Johnson said estimates will play out "if market conditions...remain at their current levels, we expect."

Overall, the big risk Johnson sees ahead is the Section 232 probe, which can be hard to scope. However, even with this risk adjusted for, Johnson still only sees U.S. Steel as fairly valued.

Back in April, Johnson said he believes the stock could see downside to $14 per share by the end of the year. That represents his current price target on the stock, on which he holds a Sell rating.

Shares of U.S. Steel were trading around $21.88 at time of publication.

See also:

Still A Trump Trade Left In Steel? Citi Upgrades Commercial Metals

Latest Ratings for X

Mar 2018Goldman SachsInitiates Coverage OnNeutral
Mar 2018Vertical GroupDowngradesHoldSell
Mar 2018Credit SuisseMaintainsOutperformOutperform

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