BMO Capital says the selloff in shares of U.S. Steel (X) yesterday following reports that President Biden is preparing to block the Nippon Steel (NPSCY) buyout creates an attractive entry point. U.S. Steel shares are fundamentally undervalued given as its investments in the electric arc furnace asset will lift through-cycle profitability, the analyst tells investors in a research note. The firm says the shares do not fairly reflect the electric arc furnace investments that are set to improve U.S. Steel’s profitability and free cash flow profile. Further, U.S. Steel’s capex spending is set to decline materially, which will offer potential for increased capital returns, contends BMO. It keeps an Outperform rating on the shares with a $45 price target.
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