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US Steel (NYSE:X) +4.2% after BMO Capital upgraded the company to Outperform from Market Perform with a $45 price target, raised from $43, saying shares are “fundamentally undervalued” with or without a Nippon Steel deal.
BMO analyst Katja Jancic says US Steel’s (X) investments in mini-mill/EAF assets – on-time and on-budget – “should translate to improved profitability and free cash flow generation through-cycle, with the profitability uplift not fully appreciated.”
US Steel (X) should start benefiting from these investments in 2025, the analyst says, with full run-rate EBITDA potential likely achieved in 2026; she estimates the company will generate ~$2.2B of EBITDA in 2026 and FCF yield of nearly 12%, compared to mid-to-high single digits for peers.
There is little conviction that the Nippon-US Steel (X) deal will close, with the stock trading ~35% below Nippon’s $55/share offer price, but while some discount is warranted relative to pure-play EAFs, Jancic believes US Steel (X) shares do not fully reflect the broader industry multiple re-rate and the mini-mill/EAF investments that are set to improve the company’s profitability profile.