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US Steel (NYSE:X) -0.9% in trading on Friday as GLJ Research sees “issues on the horizon,” doubling the stock to Sell from Buy with a $13.85 price target.
Last week, the steel leader reported strong fourth-quarter earnings to winbut analyst Gordon Johnson said he was concerned by internal data that included negative EBIT in the company’s Mini Mill and USSE segments, as well as a $72 million EBIT loss at Big River.
Johnson noted that US Steel’s ( X ) reported quarterly flat-rolled steel segment ASP has an R² correlation of 93.3% to the last quarterly price of the US Midwest hot-rolled steel futures index dating back to 2013, quarterly segment ASP of Mini Mill has an R² correlation of 95.5% against the trailing quarterly US HRC spot price dating back to 2021, its quarterly USSE segment ASP has an R² correlation of 95.5% with its reported Flat Rolled segment ASP dating back to 2013 ., and its tubular segment ASP has an R² correlation of 74.04% against its USSE segment ASP dating back to 2013.
Using these correlations, Johnson expects US Steel (X) Q1 EBITDA to come in below Wall Street’s consensus, and “with the US HRC spot price at $776/st in Q3 2022, falling to $744/st st in Q4 … it can be determined that X’s fundamentals will suffer when Q1 results are released in about three months,” Johnson wrote.
The analyst sees three key headwinds for US Steel ( X ): a disappointing reopening in China, a disappointing macro backdrop in the US and weakening US liquidity.
Citi analyst Alex Hacking said earlier this week that he expects a weaker steel market in the second half of this year.