Why Morgan Stanley Is Bullish On US Steel

United States Steel Corporation X is poised for significant cash flow generation, given the near-term strength in steel prices, according to Morgan Stanley.

The U.S. Steel Analyst: Carlos De Alba upgraded the rating for U.S. Steel to Overweight, while revising the price target to $32.

The U.S. Steel Thesis: Steel market fundamentals continue to be strong and the HRC (hot-rolled coil) prices are expected to remain above $1,000 per ton through at least the fourth quarter of 2021, De Alba said in the upgrade note.

“Softening steel prices may become a temporary headwind to the equities, but cash generated this year will have a material impact on balance sheets,” he added.

The strong cash flow generation could materially accelerate U.S. Steel's deleveraging, thereby “alleviating our previous concerns about the company's balance sheet,” the analyst wrote.

“Big River Steel is performing much better than we expected, and we forecast the business will contribute ~$1.0b and $0.5b to X's EBITDA in 2021 and 2022. At our updated steel price deck, we expect consolidated EBITDA of $3.9b this year and $2.1b next year, and FCF yield of 26% and 17%, respectively,” he stated.

X Price Action: Shares of U.S. Steel had risen by 2.82% to $28.23 at the time of publication Tuesday.

(Photo: U.S. Steel)