Cleveland-Cliffs and Steel Dynamics Gain Attention Amid US Steel Bidding War

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Cleveland-Cliffs and Steel Dynamics Gain Attention Amid US Steel Bidding War
Credit: © Reuters.

In the wake of a vigorous bidding war for United States Steel (NYSE: X ), other steel corporations such as Cleveland-Cliffs (NYSE:NYSE: CLF ) and Steel Dynamics ( NASDAQ :NASDAQ: STLD ) are experiencing increased attention in the market. On Monday, both companies were upgraded from 'Hold' to 'Buy' by Citi analyst Alexander Hacking.

The price targets for Cleveland-Cliffs and Steel Dynamics remain steady at $22 and $130 per share respectively, despite shares of Cleveland-Cliffs rising 2.1% to $14.77 each, and shares of Steel Dynamics increasing by 1.9% to $102.98 each in early trading.

Hacking's report indicates that sheet steel prices are anticipated to rise due to seasonal restocking, a trend that could be further amplified once the United Auto Workers strikes are resolved. Additional factors contributing to this expected increase include maintenance outages and slowing imports. The report predicts that benchmark sheet steel prices may average at $800 a ton, marking a significant increase from the current price of approximately $700 a ton.

Highlighting the correlation between rising commodity prices and increasing stock prices for commodity producers, Hacking noted that Cleveland-Cliffs is trading at its lowest enterprise value since 2020, estimated at around $12 billion.

The bid for U.S. Steel by Cliffs, offered in cash and stock, has also received Hacking's approval. This bid followed U.S. Steel's announcement of exploring strategic alternatives, including potential company sales. The bid values U.S. Steel stock at roughly $32.60 per share, with current shares trading at $31.94 each.

However, Hacking retains a 'Hold' rating for U.S. Steel stock with a price target of $32 per share, suggesting that its value will be tied to the Cliffs bid until the board finalizes the company's future.

Despite the positive outlook for Steel Dynamics, analyst coverage remains relatively low, with only 8% rating shares as 'Buy', compared to the S&P 500 average of 55%. The average analyst price target for Steel Dynamics is about $107 per share. In contrast, half of the analysts covered Cleveland-Cliffs stock rate shares as 'Buy', with an average price target of approximately $18.50 per share.

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