GLJ Research Upgrades US Steel, Shares Gain 4%

US Steel (NYSE:X) shares gained more than 4% intra-day on Monday after GLJ Research analysts upgraded the company to Buy from Sell, citing a potential upside in the stock’s valuation despite recent declines. The company's shares have dropped by 37% since reaching a high in December 2023, while the broader market has gained around 14%. Much of this drop is attributed to news that President Joe Biden may block Nippon Steel's acquisition of US Steel.

However, the analysts believe the market's pessimism on US Steel has been overdone. Using a Sum-of-the-Parts (SOTP) analysis, the analyst estimates a 23.3% potential upside from the company's current price. The analysis factors in peer-industry multiples, expected 2025 EBITDA for US Steel's segments, and the ramp-up of Big River 2, which is anticipated to significantly boost the company’s Mini Mill revenue.

According to the analysts, US Steel's current price reflects its trailing 12-month EBITDA but doesn't fully account for the ramp-up of Big River 2, which is expected to nearly double Mini Mill revenue in 2025. The analysts argue that investors are willing to pay high valuations for domestic steel assets, which further supports the buy rating.