Bullish indicating open at $55-$60, IPO prices at $37
On Wednesday, BMO Capital Markets updated their outlook on US Steel (NYSE: X), with analyst Étienne Ricard increasing the price target to $55 from the previous $52, while reiterating an Outperform rating on the company’s shares. Currently trading at $37.98 with a market capitalization of $8.53 billion, US Steel has shown a strong monthly return according to InvestingPro data. Ricard’s analysis highlighted US Steel’s robust fourth-quarter performance, which saw organic top-line growth of 17%, marking a period of strong execution for the company.
The analyst’s report noted that all four of US Steel’s high-growth businesses achieved record results and now represent approximately half of the company’s total revenues of $15.64 billion. Ricard projected that US Steel is positioned to experience around 20% earnings growth going into 2025, which he believes will be the most substantial growth the company has seen in five years. InvestingPro analysis reveals that analysts expect the company to maintain profitability this year, with several additional insights available to subscribers.
In his commentary, Ricard stated, "Entering 2025 From a Position of Strength; Q4 results provided another example of TMX’s consistent execution in raising organic top-line growth (+17%) with all four ‘high-growth’ businesses achieving record performance and collectively accounting for ~50% of revenues." Ricard’s optimistic forecast for US Steel is based on the expectation that the company will continue to deliver strong financial performance.
The increase in the price target to $55 is partly due to the analyst’s decision to roll forward the valuation base by a quarter, accounting for $2 of the $3 per share increase. The remaining $1 is attributed to higher valuation multiples, which Ricard set at 25 times earnings, up from the previous 24 times. Current valuation metrics show the stock trading at a P/E ratio of 22.22 and an EV/EBITDA multiple of 8.94, with InvestingPro’s Fair Value analysis suggesting slight overvaluation. This earnings multiple aligns with that of exchange peers that have a more predictable revenue mix, according to Ricard.
BMO Capital’s positive stance on US Steel is rooted in the company’s consistent execution and growth prospects, with Ricard concluding, "TMX is our preferred idea within our Canadian coverage." The revised price target and maintained Outperform rating reflect the firm’s confidence in US Steel’s strategic direction and potential for continued financial success. For a comprehensive analysis of US Steel’s financial health and growth prospects, investors can access the detailed Pro Research Report, available exclusively on InvestingPro.
In other recent news, US Steel has been the subject of significant developments. Morgan Stanley (NYSE:MS) has downgraded the company’s stock rating from Overweight to Equalweight, citing the current market price as reflecting the potential benefits of US Steel’s ongoing transformational investments and growth initiatives. The firm had previously upgraded the stock, anticipating value creation from the company’s strategic moves expected to enhance its EBITDA and free cash flow significantly.
US Steel also reported its Q4 2024 earnings, revealing a shortfall in both EPS and revenue compared to forecasts. The company reported an EPS of -$0.13, missing the predicted $0.04, and a revenue of $3.51 billion, $90 million below expectations. Despite these challenges, the company maintains focus on its strategic initiatives and an upcoming merger with Nippon Steel Corporation.
The merger with Nippon Steel is expected to close by Q3 2024, promising potential future growth. However, the company faces challenges from European market difficulties and negative free cash flow. These recent developments provide investors with a comprehensive overview of US Steel’s current situation.
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