Bulls Win the Day in Analysts' Tug-o-War Over Steel Stocks

The tug-of-war between steel stock analysts continued on Monday with a bullish note from Longbow researchers who claim the market fundamentals bottomed in June and that U.S. companies are ready to rise.

Much of the back and forth over the stocks in recent weeks centered on expectations of Commerce Department actions, including possible tariffs and other punitive moves, against foreign steelmakers selling their wares in the U.S.

The so-called Section 232 ruling is expected any day, but recent reports describe infighting and positioning in Washington as delaying the decision.

And, last week, those reports prompted Axiom analyst Gordon Johnso to tell clients investors need to be ready for a tamer Commerce Department ruling than was expected a few weeks ago. 

Johnson singled out U.S. Steel as a laggard and predicted the company would cut its 2017 EBITDA forecast by about 28%, to $796 million, when it releases its second-quarter results later this month or in early August. Ebitda measures earnings before interest, tax, depreciation, and amortization.

U.S. Steel stock could take a hit if it cuts its earnings guidance. When the company cut its forecast by 15% in the first quarter of 2016, the stock fell 27%.

But on Monday Longbow analyst Chris Olin told his clients that, "Carbon steel fundamentals have bottomed in early June and visibility on the industry has improved, steel industry participants see improved steel distributor activity and incremental confidence in a positive Section 232 outcome."

Olin upgraded Nucor Corp. (NUE) , Steel Dynamics Inc. (STLD) , U.S. Steel Corp. (X) , and AK Steel Holding Corp. (AKS) to buy from neutral.

Olin said his industry contacts see a $50 to $60 per ton jump in steel prices by year end, making for a $630 to $640 per ton year-end price.

Nucor shares rose 3.2 percent to $56.66, U.S. Steel shares rose 4 percent to $20.97, Steel Dynamics shares added 2 percent to $33.82 and AK Steel climbed 3.7% to $6.21.

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