Rising commodity prices can also mean rising stock prices for commodity producers.
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Steel investors have been focused on the bidding war unfolding around
United States Steel.
They shouldn’t forget about how steel businesses are performing and valued. Things are starting to look up.
Steel makers
Cleveland-Cliffs
(ticker: CLF) and
Steel Dynamics
(STLD) were upgraded to Buy from Hold Monday, by Citi analyst Alexander Hacking. His Cliffs price target stayed unchanged at $22 a share. Steel Dynamics stock price target stayed unchanged at $130 a share.
Cliffs shares are up 2.1% at $14.77 apiece in early trading. The
S&P 500
is up 0.1%. The
Dow Jones Industrial Average
is down 0.1%. Steel Dynamics shares are 1.9% at $102.98 apiece.
“Sheet [steel] prices are expected to catch a bit [bid] from seasonal restocking, potentially exacerbated when the UAW strikes are resolved, supported by maintenance outages and slowing imports,” wrote Hacking in his upgrade report.
Restocking means more orders and sales for the steel mills. He expects benchmark sheet steel prices to average $800 a ton. Prices are about $700 a ton today.
Rising commodity prices can also mean rising stock prices for commodity producers. Hacking likes the valuations too. “Cliffs trades at the lowest enterprise value since 2020, and we are comfortable with the bid for U.S. Steel,” added the analyst. “Steel Dynamics is relatively exposed to flat rolled prices versus EAF [electric arc furnace] peers.”
Enterprise value is essentially the value of the whole company including shares, debt and cash. Cliffs’ enterprise value is about $12 billion.
Steel Dynamics and
Nucor
(NUE) primarily use EAFs and remelt scrap steel to produce steel products. Along with sheet steel, steel producers make long-products including rebar and beams.
Hacking is also “comfortable” with the bid for U.S. Steel. Cliffs announced a cash and stock bid for the company shortly after U.S. Steel announced it was looking at its strategic alternatives including a potential sale of the company. The bid U.S. Steel stock at about $32.60 a share. U.S. Steel shares are at $31.94, down 0.2% in early trading.
Hacking rates U.S. Steel stock Hold. His price target is $32 a share. That stock will be tied to the value of the Cliffs bid until U.S. Steel’s board makes a decision about the future of the company.
Only 8% of the analysts covering Steel Dynamics rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $107 a share.
Overall, 50% of analysts covering Cliffs stock rate shares Buy. The average analyst price target is about $18.50 a share.
Write to Al Root at [email protected]
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