On Thursday, Morgan Stanley reiterated its Equalweight rating and $51.00 price target for US Steel (NYSE:X), following President Biden's remarks on the proposed Nippon Steel acquisition. The President expressed concerns about the deal, emphasizing the importance of US Steel remaining an American-owned company. This stance echoes former President Trump's opposition voiced in February.
The speech by President Biden is anticipated to prolong the review process of Nippon's proposed acquisition and could inject additional risk and uncertainty into the potential transaction's completion. Despite the political scrutiny, Morgan Stanley's analysis suggests that the acquisition would not pose a significant national security threat, considering Japan's status as a close ally of the United States.
Morgan Stanley expects that if the deal were to fall through, US Steel shares would not revert to the approximate $25 per share level seen prior to the strategic review process initiated by CLF's bid. Instead, the firm predicts a potential drop to around $35 per share.
The firm's mid-2024 base case valuation stands at $47, which is based on a pension-adjusted EV/EBITDA multiple of 5.3x on projected earnings for the second half of 2024 through the first half of 2025, slightly below the current $51 price target. Morgan Stanley views this base case as fair value for US Steel on a stand-alone basis.
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