Why U.S. Steel Doesn't Look So Solid

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of U.S. Steel (NYSE: X  ) slipped 2% today after UBS Investment Research downgraded the company from buy to neutral.

So what: Despite the downgrade, analyst Matt Murphy raised his price target to $25 (from $22), representing about 4% worth of upside to yesterday's close. While Murphy expects U.S. Steel's fundamentals to improve over the short term, he also doesn't see room for significant price appreciation given the industry headwinds that management continues to face.

Now what: UBS thinks U.S. Steel's longer-term investors could be disappointed. "We expect US Steel to benefit from reduced pension liabilities in 2014, while also improving margins through cost reduction and revenue maximization efforts currently under way," noted UBS. "However, we remain concerned about increasing competition in X's most profitable segment, Tubular goods, and we only see sector capacity utilization reaching higher levels in 2016, meaning margins could remain weak in the medium term." Of course, with U.S. Steel shares now sporting a rather cheapish price-to-cash flow multiple of 5, it's hard to believe that those risks aren't somewhat baked into the valuation.

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