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Shares of BlueScope Steel (ASX:BSL) experienced a modest increase of 1.1% on the ASX, climbing to AU$20.17. This uptick comes amidst a backdrop of cautious sentiment from analysts at Jefferies, who have recently flagged ongoing earnings pressures for the steel producer.
Earnings Pressure Well Understood
Jefferies' analysts have indicated that the earnings challenges faced by BlueScope Steel are "well understood" in the market. This understanding has influenced their decision to re-rate the stock, maintaining a "Underperform" rating with a price target (PT) of AU$18.03. The brokerage's analysis highlights that the current earnings pressure is primarily attributed to a cyclical downturn in the North American steel markets. Additionally, the company is facing challenges in Asia, where weak property and construction markets are exerting further strain.
High-Quality Global Franchise
Despite these pressures, Jefferies continues to view BlueScope Steel as a high-quality global steel franchise. The analysts acknowledge the company's strong market position and operational excellence but argue that the current stock price reflects these strengths adequately. They suggest that there is limited upside potential at present levels, particularly considering the mid-cycle valuation of the stock.
Year-to-Date Performance
The cautious outlook from Jefferies comes against a backdrop of significant year-to-date declines in BlueScope Steel's share price. As of the most recent close, the stock has fallen by 14.7% this year. This decline underscores the broader challenges faced by the steel sector, influenced by cyclical market conditions and sector-specific pressures.
