Benzinga | Mar 15, 2021 10:59AM EDT

Here's Why BofA Raised US Steel Target By 50%

United States Steel Corporation (NYSE:X) guided to Q1 EBITDA above the consensus estimate, but two-thirds of its sales are on contract, which limits near-term upside potential from record high hot rolled coil (HRC) prices, according to BofA Securities.

The US Steel Analyst: Timna Tanners reiterated an Underperform rating for U.S. Steel, while raising the price target from $8 to $12.

The US Steel Thesis: Management guided first-quarter adjusted EBITDA at $540 million, versus the consensus estimate of $522 million, Tanners said in the note.

"Mgmt guided to significantly higher flat rolled EBITDA q/q, noting cost benefits from its Gary #4 restart with negligible weather hit at Big River Steel," she added.

"Europe was said to be exceeding initial flat q/q expectations, tempering rising raw material costs and lower auto demand from semiconductor shortages," the analyst wrote.

Tanners further stated that she expects the company's second-quarter performance to improve further due to "extended lead times." She noted, however, that "by the time U.S. Steel has more to sell in the spot market, we expect prices to be lower."

X Price Action: Shares of U.S. Steel had declined by 2.63% to $23.52 at the time of publication Monday.

(Photo: U.S. Steel)