U.S. Steel’s (NYSE:X) stock price has been up and down, making headlines because of the merger drama with Nippon Steel (NISTF). However, the company recently attracted investors’ attention after Jefferies’ five-star analyst Christopher LaFemina initiated coverage on U.S. Steel with a Buy rating and a $45 price target. For reference, the current price is $36.81 at the time of writing. The analyst’s call has little to do with the company’s potential merger with Nippon Steel, as LaFemina is also constructive on other U.S. metal producers. In fact, it’s all about the outlook for American metals.
American Metals to Benefit from Strengthening Economy
Forget the merger chatter for a moment. LaFemina’s premise is built on the strengthening U.S. economy. The analyst sees a wave of infrastructure spending fueled by recent legislation like the Infrastructure Investment and Jobs Act, the CHIPS Act, and the Inflation Reduction Act. This surge in taxpayer-funded outlays should spur significant demand for American-made metals, benefiting U.S. Steel and its peers.
Merger or Not, U.S. Steel Is Hot
The limbo of the proposed merger with Nippon Steel casts a long shadow, but LaFemina’s call looks beyond what might happen. The analyst believes U.S. Steel has a bright future regardless of the deal’s outcome. He thinks the company is well-positioned to capitalize on the economic upswing, thanks to factors like infrastructure spending and focus on made-in-America initiatives.
The Jeffries analyst points to a growing emphasis on domestic production across various industries, including steel. This trend bodes well for U.S. Steel’s position in the market, as it’s the prime candidate to fulfill the demand for steel for infrastructure projects.
U.S. Steel Isn’t Stealing the Show Alone
LaFemina’s bullishness extends beyond U.S. Steel. He also initiated coverage on Cleveland-Cliffs (NYSE:CLF) with a Buy rating and a $22 price target. This suggests that the analyst sees a strong overall outlook for the American steel industry.
Interestingly, though, Nucor (NYSE:NUE) and Steel Dynamics (NYSE:STLD) received Hold ratings. However, that’s mostly attributable to the notion that their valuations already reflect some of the expected growth. U.S. Steel and Cleveland-Cliffs, trading at lower valuations, have more potential upside as the industry thrives.
Key Takeaway – A Shift in Analyst Sentiment
The recent Buy rating on U.S. Steel is a significant development, signaling a shift in analyst sentiment towards American steel manufacturers. The focus is on the robust economic outlook and the potential for domestic steel producers to capitalize on the infrastructure boom. While the Nippon Steel merger adds a layer of complexity, the core thesis remains – U.S. Steel and the broader American steel industry are poised for significant growth.
