US Steel (NYSE:X) +0.7% in Monday’s trading as most steelmaking peers show losses, as Morgan Stanley upgraded the stock to Overweight from Equal Weight with a Street-high $40 price target, raised from $25, and names it as a Top Pick, citing “expected value creation from the company’s transformational investments.”
Morgan Stanley analyst Carlos de Alba said his call is supported by US Steel’s (X) ongoing strategic review process to potentially sell the company or some assets, which highlights the value of the company’s growth initiatives.
De Alba said US Steel (X) is undergoing a rapid transformation by expanding its EAF capabilities and high value-add downstream offerings, highlighted by the state-of-the-art Big River 2 mini mill expected to come online in 2024, which will nearly double its EAF steelmaking capabilities, and raising its presence in downstream products by constructing a 325K tons/year galvanizing line and a 200K tons/year non-grain-oriented electrical steel line in conjunction with BR2.
The analyst sees these investments leading to robust EBITDA growth of $600M over three years and free cash flow expansion of $2B in the same period.