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Investing.com -- BMO Capital upgraded Steel Dynamics (NASDAQ:STLD) to Outperform while downgrading United States Steel (NYSE:X) to Market Perform in separate notes Monday, citing valuation concerns and policy-related tailwinds.
BMO Capital sees several positive tailwinds for Steel Dynamics that the market has yet to fully appreciate.
Analysts highlight that STLD is well-positioned to benefit from expanded Section 232 tariffs, especially given its large exposure to coated steel products, which represent a significant portion of U.S. steel imports.
“STLD as a domestic steel producer is positioned to benefit from the expansion of Section 232 tariffs,” BMO noted.
The firm also sees a turnaround at STLD’s Sinton facility, which has weighed on earnings since 2022. Now operating at over 90% capacity, analysts expect it to contribute to earnings starting in 2H’25, potentially adding $475-525 million in through-cycle EBITDA.
Additionally, they note that STLD is approaching the end of its multi-year investment cycle, with forecasted free cash flow (FCF) yields of 5.3% in 2025 and 9.9% in 2026, well above peers.
As a result, BMO has raised its 2025/2026 EBITDA estimates to $2.53 billion and $3.05 billion, with a new price target of $145 per share.
Meanwhile, although BMO acknowledges US Steel’s potential profitability boost from its mini-mill and EAF investments, the firm believes the stock is now nearing fair fundamental value after a 26% year-to-date gain.
“In our view, X shares are now approaching fair fundamental value,” analysts wrote.
Furthermore, uncertainty surrounding the Nippon/US Steel transaction remains high.
While discussions with regulators are ongoing, former President Trump’s mixed stance on foreign ownership adds risk.
“This uncertainty, in our opinion, is too great at this point to maintain an Outperform recommendation solely based on the premise the transaction is completed,” concluded the firm.