Steel prices are expected to remain firm, and J.P. Morgan initiates CMC (US) with a "buy" rating

Jefferies on Tuesday initiated coverage of CMC.US with a "buy" rating and a target price of $65, and expects steel prices to remain well supported for the next 3-5 years, leading to sustainable earnings.

While flat steel prices have been relatively resilient this year compared to bar and other structural/long steel prices, Jefferies analyst Christopher LaFemina attributes this to growth in demand in US construction-related end markets, which has been driven by policy-driven investment. Jefferies upgrades CMC on its "high market share in the US bar market and valuation discount relative to its EAF peers."

Despite CMC's growth in earnings, strong balance sheet and increased capital returns, the stock trades well below its main US EAF peers, though this valuation gap is partially justified given CMC's reliance on construction-related end markets and its lower liquidity, but LaFemina expects the valuation gap to narrow over time as policy-driven investment continues to be realized and US bar prices rise, driving earnings growth of ~20% in fiscal 2024-26.

CMC closed 4.94% lower at $50.94 on Tuesday as steel producers and industrial metals stocks fell, with CLF down over 7%, X down over 6%, NUE and STLD down near 5%.