Goldman Sachs Replaces Nucor with U.S. Steel on Its Conviction Buy List

The recent price increase announced for steel used in pipelines and resource extraction infrastructure, as well as its high leverage to the metal’s price and the resulting near-term upside earnings potential, means United States Steel Corp. (X) has been added to Goldman Sachs’ Conviction Buy list. The Pittsburgh-based giant replaces rival Nucor Corp. (NUE), which has underperformed the steel sector despite gains of more than 25% in 2008.

Analyst Aldo Mazzaferro sees a near-term opportunity and boosted his price target on U.S. Steel to $228 per share from $210. He also hiked his earnings estimates for the second half of 2008, along with 2009 and 2010.

U.S. Steel has the highest sensitivity to rising steel prices, which we believe are sustainable, as growth in world demand should exceed supply for several years, in our view.

The analyst added that Goldman’s estimates are well above consensus. The 2009 consensus estimate is $17.96, 36% below Goldman’s new $28.25 estimate.

Mr. Mazzaferro’s earnings estimates and $98 price target for Nucor remain unchanged. However, he noted that both names face risks such as slower auto production and non-residential construction activity, a significant global recession, or a stronger U.S. dollar.

Comments

[dougluvs]

GS call on X and NUE happened on Monday, June 23rd.