TX - Ternium cut at Itua BBA after strong YTD run-up; Morgan Stanley upgrades

2023-03-09 13:15:01 ET

Ternium ( NYSE: TX ) -2.3% in Thursday's trading as Itau BBA downgraded shares to Market Perform from Outperform, saying the stock needs "time to breathe" after its 47% YTD run-up.

While Itau BBA said it factored in better steel prices in Mexico relative to previous estimates based on its belief that Ternium ( TX ) will continue to benefit from the increase in flat steel prices in the U.S., the firm's new year-end 2023 $49 stock price target yields limited 9% distributable cash flow upside.

The firm said Ternium's ( TX ) recently announced upstream project in North America that includes a new EAF and port facility for raw material handling - with an estimated $2.2B capex and anticipated startup in 2026 - should help improve the company's profitability by reducing slab costs

Although the new upstream project likely will yield higher EBITDA margins in the long term, Itau BBA sees limited free cash flow generation during 2023-26 due to the project's intensive capex requirements.

Earlier this month, Morgan Stanley upgraded Ternium ( TX ) to Outperform with a $52 price target, saying profitability at Latin America's leading steelmaker has reached an inflection point, which it says has historically proven a good entry point for the stock.

Morgan Stanley believes Ternium's ( TX ) EBITDA bottomed in Q4 2022 at ~$100/ton, the lowest level in nearly three years, and could double in 2024.

Ternium ( TX ) provides investors with "an excellent opportunity in an industry with envisioned mayhem," Fade The Market writes in an analysis posted on Seeking Alpha.

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