Cleveland-Cliffs Shares Rise on J.P. Morgan Recommendation, U.S. Steel Stock Falls on Deal Risk Analyst Concerns
Shares of Cleveland-Cliffs, a steel maker, are climbing following a recommendation by J.P. Morgan to buy the stock. On the other hand, United States Steel stock is experiencing a decline due to concerns raised by analyst Bill Peterson regarding deal risks.
Cliffs shares show promise with J.P. Morgan’s Buy rating
Cleveland-Cliffs shares have seen a 1% increase in premarket trading on Friday after J.P. Morgan issued a recommendation to buy the stock. This comes after a period of restriction for the company, during which ratings were temporarily suspended due to its bid for U.S. Steel. Analyst Bill Peterson, who previously rated Cliffs as a Buy, has reinstated this rating and set a price target of $24 per share.
U.S. Steel faces deal uncertainty and regulatory concerns
U.S. Steel stock, however, has taken a downturn, dropping by 0.8% in premarket trading. Peterson has expressed concern about the regulatory overhang associated with the deal between U.S. Steel and Japanese steel giant Nippon Steel. Investors are worried that U.S. regulators may attempt to prevent the deal, which is reflected in U.S. Steel stock trading below the deal price at $46.
Peterson’s outlook for U.S. Steel stock
Peterson has reinstated a rating on U.S. Steel stock, categorizing it as a Hold with a price target of $47. His more conservative outlook stems from comments made by former President Donald Trump, who stated that he would block the deal if elected. Peterson questions the rationale behind blocking the deal, as U.S. Steel represents only 0.03% of the S&P 500’s market capitalization. Additionally, he highlights that Nippon Steel is a larger steel company with more resources to invest.
Potential consequences if the deal falls through
In the event that the deal between U.S. Steel and Nippon Steel does not proceed, Peterson predicts that the stock could drop to approximately $40. Prior to the interest in the company in the summer of 2023, U.S. Steel’s shares were in the mid-$20s.
Positive outlook for Cliffs stock
Peterson’s recommendation for Cliffs stock reflects his belief that the company will generate substantial cash in 2024 and the following years, driven by reduced cost pressures and minimal capital expenditure requirements. This positive outlook is also supported by Wall Street’s estimation of Cliffs generating around $1.4 billion in free cash flow annually for the coming three years. With a market capitalization of approximately $10 billion, Cliffs’ shares are trading at about 7 times free cash flow.
Analyst sentiment and target prices
Peterson is relatively bullish on Cliffs stock compared to his peers, as the average analyst price target is $20 per share. Around 42% of analysts rate Cliffs shares as a Buy, slightly below the average Buy-rating ratio for stocks in the S&P 500, which stands at approximately 55%. In contrast, the average analyst target price for U.S. Steel stock is approximately $42, with only 10% of analysts covering the stock rating it as a Buy. It appears that analysts are hesitant to recommend U.S. Steel stock due to the uncertainty surrounding the deal with Nippon Steel.
Inquiries: Al Root – [email protected]
Analyst comment
Positive news: Cleveland-Cliffs shares rise on J.P. Morgan recommendation.
Negative news: U.S. Steel stock falls on deal risk analyst concerns.
Market prediction: Cleveland-Cliffs shares will continue to increase in value due to positive recommendations and expected cash generation. U.S. Steel stock may face further decline if the deal falls through, potentially reaching $40 per share.
