Nucor stock is rising and shares of Cleveland-Cliffs are falling after an analyst argued the former steel maker deserves a better valuation than the latter.
Citi analyst Alexander Hacking flipped his ratings on the stocks. He now rates Nucor shares at Buy instead of Hold, lifting his target for the stock price to $240 from $180. He kept his price target for Cliffs stock at $22 but lowered his rating to Hold from Buy.
Cliffs’ “revenues have been as good as advertised (if not better) based on strong volumes, record [automotive] steel prices, and resilient hot rolled coil [pricing], but higher costs have led to underwhelming [earnings],” wrote Hacking.
Hot-rolled coil, a benchmark steel product, is processed for use in car manufacturing. Cliffs is a significant provider of steel to auto makers.
Cliffs is expected to earn about $1.50 a share in 2024, according to FactSet. That is better than the $1.07 reported in 2023, but not as good as the $3.42 reported in 2018. Cliffs has had trouble generating consistent earnings growth.
Nucor, according to Hacking, is the better bet and deserves a higher valuation multiple because of a “20-year-plus track record of earnings per share growth and positive free cash flow generation.”
Nucor is expected to earn about $13.30 a share in 2024, not as good as the $18 reported in 2023, but much higher than the $7.64 reported in 2018.
Nucor stock trades for about 13.6 times the per-share earnings expected for 2024, while Cliffs sells for about 13.7 times. The S&P 500 trades for about 20 times.
Cliffs stock was down 1.6% in midday trading at $20.15. Nucor stock was up 0.9% at $184.49. The S&P 500 was flat and the Nasdaq Composite was off about 0.3%.
“We remain mid-term steel bulls but acknowledge the slowing U.S. economy as a key risk,” Hacking said. “Steel stocks won’t outperform in a recession.”
Benchmark steel prices have slid over the past 12 months, falling to about $850 a ton from $1,250, though they are up about $75 from February levels. Rising steel prices are typically good news for steel stocks.
Overall, 33% of analysts covering Cliff stock rate the company at Buy, while the average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average price target for Cliffs stock is about $20.
About 38% of the analysts covering Nucor stock rate the shares at Buy. The average analyst price target is about $188 a share. Cliffs stock was down about 1% so far this year, while Nucor shares were up about 6%.
Write to Al Root at allen.root@dowjones.com