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BofA Upgrades Steel Dynamics, Nucor Amid Record Steel Prices

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BofA Upgrades Steel Dynamics, Nucor Amid Record Steel Prices

U.S. steel prices remain at record highs. One analyst says investors shouldn’t fight the trend and upgraded two steel stocks.

The Analyst: Bank of America analyst Timna Tanners upgraded Steel Dynamics, Inc. (NYSE: STLD) from Neutral to Buy and raised her price target from $49 to $61. Tanners also upgraded Nucor Corporation (NYSE: NUE) from Underperform to Neutral and raised her price target from $56 to $80.

In addition to the upgrades, Tanners reiterated ratings on the following steel stocks:

  • Reliance Steel & Aluminum Co (NYSE: RS): Buy rating, price target raised from $167 to $182.
  • Commercial Metals Company (NYSE: CMC): Underperform rating, price target raised from $24 to $25.
  • United States Steel Corporation (NYSE: X), Underperform rating, price target raised from $12 to $14.

Related Link: Record Steel Prices Create Investment Opportunities For These 4 Stocks

The Thesis: Tanners said the U.S. steel market has bucked multi-decade downward pricing trends and set new record in 2021. Tanners said steel prices will normalize once the industry works through the current patch of temporary undersupply produced by COVID-19 related production disruptions.

However, she said the near-term earnings windfall for steel companies as a result of the spike in steel prices could have a positive impact on the balance sheets of the top steel stocks through at least the first three quarters of 2021.

“STLD and NUE not only have better balance sheets as a result of this unprecedented steel environment, but in our view are well positioned to continue to dominate and operate capacity even assuming oversupply down the road,” Tanners wrote in the note.

She said U.S. Steel will likely get the least benefit from the near-term windfall profits given it needs more than $2 billion in major repairs to existing assets.

Benzinga’s Take: Record steel prices may not last, but both Nucor and Steel Dynamics appear to already be pricing in a pullback in steel prices at some point. Nucor shares trade at just 18.8 times forward earnings, while Steel Dynamics has a forward earnings multiple of just 14.9.

Latest Ratings for STLD

DateFirmActionFromTo
May 2021Morgan StanleyMaintainsOverweight
Apr 2021B of A SecuritiesUpgradesNeutralBuy
Apr 2021Credit SuisseMaintainsOutperform

View More Analyst Ratings for STLD
View the Latest Analyst Ratings

 

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