Shares of U.S. Steel (X) surged in today’s trading after Wolfe Research analyst Timna Tanners reaffirmed that the steelmaker is valued at $35 to $45 per share, even if its planned $14 billion sale to Nippon Steel (JP:5401) gets blocked. She believes the lower range is achievable soon, and the higher end is possible after Big River Steel’s expansion adds 3 million tons annually to production.
For those who might not know, Big River Steel is considered one of the most advanced and environmentally efficient steel mills in the U.S. and is owned by U.S. Steel. It uses electric arc furnace technology to produce high-quality steel with lower carbon emissions.
Tanners also pointed out that if the deal falls through, Nippon Steel may owe a $565 million breakup fee, which would add about $2 per share to U.S. Steel’s value. As a result, Tanners believes that U.S. Steel’s stand-alone value is strong and ruled out the possibility of the company being split up despite interest from Cleveland-Cliffs (CLF).
Nevertheless, Nippon Steel is trying to save the deal by engaging with officials in Washington, though reports suggest Biden is likely to block it.
What Is the Future of X Stock?
Overall, assuming a deal doesn’t go through, analysts have a Strong Buy consensus rating on X stock based on three Buys, one Hold, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 22% rally in its share price over the past year, the average U.S. Steel price target of $45.25 per share implies 21.22% upside potential.
