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On Tuesday, BofA Securities issued a downgrade for Bluescope Steel Ltd. (BSL:AU) (OTC: BLSFF), adjusting its stock rating from Buy to Underperform. The firm also set a new price target of AUD23.00, a slight increase from the previous AUD22.70. The downgrade followed a 13% surge in the company's share price after it announced its first-half fiscal year 2025 financial results on February 17.
BofA Securities' analyst cited a lower-than-expected earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for the second half of FY25 as a reason for the downgrade. Consequently, the firm reduced its FY25 EBITDA estimate by 1.5%. However, an anticipated decrease in raw materials costs led to a 3.7% increase in the FY26 EBITDA forecast.
Despite the adjustments, BofA Securities maintained its negative total shareholder return (TSR) expectation of 5.0% for Bluescope Steel. The new price objective is based solely on the calendar year 2025 estimated EBITDA, using an unchanged enterprise value to EBITDA (EV/EBITDA) multiple of 5.5x. Previously, the price objective was based on an average of FY25 and FY26 EBITDA.
The analyst noted that while positive factors such as tariffs and strong demand in the US steel market could benefit Bluescope Steel, these are offset by the company's significant exposure to steel demand from Australia, Asia, and the Asia/China hot-rolled coil (HRC) spread. BofA Securities does not foresee a scenario where Bluescope Steel could trade at a premium to the target multiple, indicating limited potential for a re-rating of the stock.
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