United States Steel Downgraded to Sell by GLJ Research from Buy Rating

United States Steel Downgraded to Sell by GLJ Research from Buy Rating

On May 26, 2025, GLJ Research analyst Gordon Johnson downgraded United States Steel (NYSE: X) from a Buy rating to Sell, citing concerns over the company’s management of its Big River asset and potential overvaluation in a proposed acquisition [1]. This move comes as the stock is trading near its 52-week high of $54, with a remarkable year-to-date return of 57%.

Johnson’s analysis highlights several key issues. The Mini-Mill operations have seen a significant decline in EBITDA/Ton and an increase in cost/ton since the first quarter of 2021, reflected in the company’s weak gross profit margin of 9%. Additionally, a simplified comparable company analysis suggests that US Steel’s current P/E ratio of 123.58 and EV/EBITDA of 16.12 indicate potential overvaluation [1].

The downgrade follows a detailed comparison of U.S. Steel with its peers, including Cleveland-Cliffs (NYSE: CLF), Nucor Corporation (NYSE: NUE), and Steel Dynamics, Inc. (NASDAQ: STLD). Johnson applied a simplified comparable company analysis, considering the annualized first-quarter 2025 EBITDA and the 2025 estimated consensus EBITDA for each company. The findings led to the conclusion that Nippon, which has shown interest in acquiring US Steel, might be overpaying by a wide margin, ranging from 63.3% to 612.4% [1].

Johnson’s commentary also highlighted the underperformance of US Steel in comparison to EAF-based companies over the past 21 quarters. He pointed out that high operating leverage and fixed overhead costs associated with blast-furnace technology have put integrated steel producers like US Steel at a disadvantage. In contrast, EAF-based operations, such as those run by Nucor and Steel Dynamics, benefit from greater flexibility, better energy efficiency, and lower capital costs, allowing them to adjust production more effectively in response to demand changes [1].

The analyst also referenced previous advice to investors who had followed his recommendation to buy US Steel stock on September 9, 2024, when it was trading at $31.27 per share. This recommendation was partly based on the possibility of President Donald Trump approving Nippon’s acquisition of US Steel, a prospect that now seems less likely [1].

With the stock’s current price of $53.23 and an RSI indicating overbought conditions, Johnson’s current advice to investors is to sell their shares [1]. InvestingPro subscribers can access 12 additional key insights and a comprehensive Fair Value analysis to make informed investment decisions [1].

The downgrade reflects a stark shift in sentiment from GLJ Research, considering the previous upgrade to Buy on the expectation of a beneficial acquisition outcome. The change in rating is a direct response to Johnson’s analysis of US Steel’s operational challenges and the broader market dynamics affecting the steel industry [1].

In other recent news, U.S. Steel is at the center of significant developments, starting with the potential acquisition by Japan’s Nippon Steel. This proposed deal includes a substantial investment plan of $14 billion, aimed at bolstering U.S. Steel’s infrastructure with a new steel mill and other developments. The U.S. government might acquire a "golden share" in U.S. Steel, allowing it to veto major management decisions, highlighting the strategic importance of the company [1]. Despite these plans, the United Steelworkers union has urged President Trump to reject Nippon Steel’s bid, citing concerns about undermining the domestic steel industry [1].

Jefferies also downgraded U.S. Steel’s stock rating from Buy to Hold, although it raised the price target to $55, reflecting recent market optimism [1]. The merger talks are under review by the Committee on Foreign Investment in the United States, with national security implications being a point of contention. Meetings are scheduled in Washington and Pennsylvania to discuss the merger’s progress, with stakeholders keenly observing the developments [1]. As the deadlines for the CFIUS and merger agreement approach, the outcome remains uncertain but crucial for the future of U.S. Steel [1].

References:
[1] https://www.investing.com/news/analyst-ratings/glj-research-cuts-us-steel-stock-rating-to-sell-93CH-4072269
[2] https://www.ydr.com/videos/news/local/2025/05/29/nippon-steel-deal-in-pennsylvania-shapiro-talks-history-and-future/83924748007/
[3] https://finance.yahoo.com/news/jeffries-downgrades-united-states-steel-175130300.html
[4] https://finance.yahoo.com/news/cleveland-cliffs-shares-slide-glj-134036961.html
[5] https://www.gurufocus.com/news/2888894/united-states-steel-x-receives-price-target-increase-from-jefferies-x-stock-news