STZHF - Nucor Steel Dynamics slide as J.P. Morgan initiates at Sell equivalent

2023-05-23 15:54:16 ET

Nucor ( NYSE: NUE ) -2.1% and Steel Dynamics ( NASDAQ: STLD ) -1.3% in Tuesday's trading after J.P. Morgan started coverage of the U.S. steel producers with Underweight ratings, citing unfavorable non-residential construction exposure, which may cause a "meaningful correction in downstream earnings that we believe is not currently reflected in shares."

While Nucor ( NUE ) and Steel Dynamics ( STLD ) are among the premier U.S. steel producers, JPM said it sees lower steel prices and tighter metal margins coinciding with softness in non-res construction to drive weaker earnings,

The two companies have ~50% exposure to non-residential construction, which JPM said could become a headwind for mini mills because of to rising interest rates and tighter lending standards.

Integrated mills U.S. Steel ( X ), Cleveland-Cliffs ( CLF ) and Stelco ( OTCPK:STZHF ) are rated Neutral on near-term earnings upside and exposure to the ongoing auto recovery cycle.

Graphite electrode producer GrafTech ( EAF ) also is a Neutral, given a likely near-term earnings inflection and leverage to a global secular shift toward electric arc furnance steelmaking.

JPM said the steel industry has seen structural improvement, but the firm takes a broadly cautious approach toward the sector as it anticipates a cyclical downturn and unfavorable pricing environment in the back half of 2023 and into 2024.

More on Nucor:

• Financial and valuation comparison to sector peers
• Analysis: Nucor Stock: More Gains Are Likely
• Stock price return: Up 4.5% YTD, up 8.5% in the past 12 months

For further details see: