U.S. Steel stock named a top pick at Morgan Stanley

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on Oct 2, 2023
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  • Morgan Stanley analyst raised U.S. Steel to "overweight" on Monday.
  • Carlos De Alba is particularly bullish on its transformation strategy.
  • U.S. Steel stock has already gained about 50% in less than two months.

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United States Steel Corporation (NYSE: X) has already gained about 50% in less than two months but a Morgan Stanley analyst is convinced that rally will continue in the coming months.

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U.S. Steel stock has clear upside to $40

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Carlos De Alba raised his rating on the integrated steel producer this morning to “overweight”. The analyst now sees upside in what he called a “top pick” today to $40 – a 25% premium on its current price.

De Alba is constructive on U.S. Steel primarily because it’s committed to turning into a tech-savvy steelmaker.

While we expect the CAPEX necessary to complete this transformation will result in negative FCF in 2023e … X’s strong balance sheet positions it well to complete this transformation.

U.S. Steel stock also pays a small dividend which makes up for another reason to invest in the company that’s expected to earn $1.01 a share in its current financial quarter versus $1.95 per share a year ago.

U.S. Steel will see strong EBITDA growth

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Carlos De Alba expects Big River mini mill of the New York listed firm to nearly double its electric arc furnace steelmaking capabilities. That mill will likely go live in 2024.

He is convinced that U.S. Steel will undergo “robust EBITDA growth” in coming years as it continues to expand its footprint in downstream products.

The Morgan Stanley analyst is bullish on the Pittsburgh-headquartered company even though steel prices are likely to remain weighed through the first quarter of next year.

De Alba likes U.S. Steel stock also because the company has attracted takeover interest from several suitors this year which, he said in his research note today, speaks volumes to how valuable its transformation strategy really is.

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