U.S. Steel Shares: Selloff Deepens

U.S. Steel shares fell sharply for the second day after its bad-news quarterly earnings release, as Goldman Sachs cuts its rating on the stock.
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(Updated for closing stock prices.)

NEW YORK (

TheStreet

) --

U.S. Steel

(X) - Get Report

didn't make many friends Tuesday when it issued a

profit warning amid a worse-than-expected fourth-quarter earnings report

.

The stock continued to plunge a day later, losing 6% Wednesday after shedding nearly 12% during Tuesday's bloodbath.

The company's statements delivered a shock to the system -- like an ice-water bath for a fever patient -- after weeks of optimism about the company's growth prospects in 2010, and after weeks of a strong rally in its stock.

Goldman Sachs

(GS) - Get Report

, for one, was taken by surprise. On Nov. 30, the firm's metals analyst, Sal Tharani, put U.S. Steel on its conviction buy list. (He later upgraded other names, including the specialty producers

Worthington Steel

(WOR) - Get Report

and

Steel Dynamics

(STLD) - Get Report

.)

Then, last week, Goldman removed U.S. Steel from that conviction list -- but still maintained its buy rating on the company's stock. The removal had more to do, anyway, with rumblings from China that banking officials there wanted to tighten the lending policies fueling the country's robust growth. Though U.S. Steel has no direct exposure to China, a slower economy in the People's Republic would likely hurt steel prices globally, Tharani argued.

Now, however, cracks appear to have formed in U.S. Steel's fundamentals. In a note to clients Wednesday, Tharani said U.S. steel's first-quarter outlook "shattered" his own prediction that the company's return to black ink would accelerate as production volumes ramped up amid a recovery and as steel prices climbed.

"We have now pushed our expectation for

U.S. Steel's return to profitability further into 2010," said Tharani, who downgraded U.S. Steel to neutral for buy. He also cut his price target on the company's stock to $55 from $67 and slashed his estimate for 2010 full-year earnings to 77 cents a share from $2.35.

"We see no near-term catalyst to excite a recovery," he wrote.

U.S. Steel shares ended trading Wednesday at $46.60, down $3.01, or 6%, on volume of 48 million shares, nearly quadruple the three-month average daily average turnover in the name. The stock touched a 52-week high of $66.45 during the first week of January, around the time that Goldman last put out a bullish note on the steel industry.

Other metals names lost ground Wednesday. Shares of

Nucor

(NUE) - Get Report

,

which also reported earnings on Tuesday

, declined by more than 2%;

AK Steel

(AKS) - Get Report

,

which reported on Monday

, fell 1.4%; and

Steel Dynamics

(STLD) - Get Report

slipped just 0.2%.

-- Written by Scott Eden in New York

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.