Investing.com -- SSAB (ST:SSABa)'s share price saw a notable recovery after investment bank Jefferies upgraded its rating on the Swedish steelmaker to "buy" from "hold," citing an improving market outlook and increased earnings potential.
The move comes as Jefferies analysts forecast a turnaround in the company's financial performance, driven by rising US steel plate prices and a more stable European market.
Jefferies has raised its price target for SSAB to SEK 64, representing a 19% upside from the prior closing price of SEK 53.70.
The analysts view the recent uptrend in US plate prices as a catalyst for SSAB’s earnings recovery, as the company holds a strong market position in the North American plate steel segment.
The upgrade follows a period of underperformance for SSAB's stock in 2024, during which it declined by about 42%, weighed down by concerns over capital expenditures and free cash flow constraints related to its decarbonization initiatives.
Jefferies' analysts highlight that SSAB’s recent results indicate the company may be at the tail end of an earnings downgrade cycle, with signs of stabilization in pricing and inventory levels across key markets.
The analysts point to recent price hikes by major US steel producers, including a $60 per ton increase by Nucor (NYSE:NUE), as evidence of strengthening demand.
This, coupled with ongoing infrastructure investments in the US and a consolidated market structure, is expected to provide further support for pricing in 2025.
The upgrade also reflects a reassessment of SSAB’s long-term investment strategy. While the company’s SEK 50 billion (€4.5 billion) investment plan for decarbonization has previously raised concerns over free cash flow, Jefferies suggests that these costs are now fully factored into market expectations.
Additionally, the firm notes that SSAB’s balance sheet remains strong, with a net cash position and a sustainable dividend yield in the range of 5-6%.
In terms of segment performance, SSAB Americas is expected to be a key driver of earnings, contributing over 15% of total EBITDA, with indirect benefits also expected in the Special Steels division, which accounts for 56% of EBITDA.
Jefferies’ regression analysis indicates a strong correlation between US plate prices and SSAB’s earnings, reinforcing the case for a potential upside as the market recovers.
Jefferies upgraded SSAB but recognizes ongoing risks. These include continued cash flow challenges until 2027 due to significant capital spending, and potential negative impacts from macroeconomic conditions on global steel demand.
However, Jefferies thinks SSAB's focus on high-quality steel, strong presence in the US market, and strategic investments will help it recover in the medium to long term.
Shares of the Nordic and US based steel company were up 3.4% at 06:19 ET (11:19 GMT).