Stressed Out: Steelmakers Rally on Bullish Nucor Guidance, U.S. Steel Upgrade

 | Jun 15, 2016 | 12:18 PM EDT
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

Shares of U.S. Steel (X) and AK Steel (AKS) were both surging by more than 8% in midday trading Wednesday on the heels of bullish reports of an industry rebound.

Nucor (NUE), the largest of the U.S. steel producers, released better-than-expected guidance for its second quarter before the opening bell of $0.65 to $0.70 per share, up from $0.39 per share year over year, and topping analyst estimates of $0.59 per share, based on a Thomson Reuters consensus survey. 

Shares of the company were up 2% in midday trading, with Nucor citing the benefits of recent so-called anti-dumping measures taken by the Commerce Department to reduce cheap Chinese steel imports, which have contributed to low prices. 

The Commerce Department announced in May it is imposing a 266% tariff on Chinese cold-rolled steel imports. Prices have since risen sharply, with imports of cold-rolled steel up roughly 21% over the past two months to $680 per short ton, based on Bloomberg pricing data. 

"We are confident that once all the facts are known, final determinations by the Department of Commerce will fully address all dumping and subsidies associated with these cases," Nucor said in a statement.

U.S. steelmakers have also been pressured over the past year by the decline of crude oil, which has prompted many formerly reliable oil and gas customers to cut back on orders as production wanes. Shares of AK Steel and U.S. Steel, for example, respectively fell 68% and 70% last year, before rebounding sharply so far in 2016.

Shareholders of the big steelmakers also benefited Wednesday from a Bank of America analyst upgrade on U.S. Steel to Neutral from Underperform, with analysts Timna Tanners and P.T. Luther citing more stable earnings and higher steel prices.

Bank of America now forecasts $673 million in 2016 EBITDA for U.S. Steel vs. consensus forecasts of $424 million, based on the higher prices. (EBITDA is a standard valuation metric standing for earnings before interest, taxes, depreciation and amortization.) 

The analysts also commended U.S. Steel's ability to push out its debt maturities with the May issuance of $980 million of senior secured notes due in 2021, although U.S. Steel leverage still remains "steep," they added, with total debt at roughly 5x projected EBITDA. Bank of America also raised its price target on U.S. Steel to $18 from $10.

U.S. Steel and AK Steel are both members of Real Money's "Stressed Out" watch list, as well as TimkenSteel (TMST), whose shares climbed 4.5% in midday trading.

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: U.S. Steelmakers Suffer From Concerns of Oversupply

Stressed Out: Ultra Petroleum Files for Chapter 11

Stressed Out: Southwestern Energy Gets Creative in Turning Itself Around

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