Commercial Metals cut at Jefferies after shares hit YTD high

[Division rebar big size used in construction concrete]
Vadzim Kushniarou/iStock via Getty Images

Commercial Metals (NYSE:CMC [https://seekingalpha.com/symbol/CMC]) -3.3% in Wednesday's trading as Jefferies downgraded the producer of rebar and related construction materials to Hold from Buy with a $70 price target, citing valuation following the stock's recent rally to a YTD high, a lower capital return trajectory due to recently announced acquisitions, and the bank's more positive near-term fundamental view on flat-rolled steel vs. rebar.

Commercial Metals' (NYSE:CMC [https://seekingalpha.com/symbol/CMC]) acquisition last week [https://seekingalpha.com/news/4504748-commercial-metals-to-buy-foley-products-in-1_84b-deal] of a second precast concrete solutions supplier should be immediately accretive on most conventional metrics, and reduce the cyclicality of the company's cash flows, but the near-term challenge is that net debt will meaningfully increase, according to Jefferies analyst Christopher La Femina, adding that shareholder returns should
slow as a result.

While La Femina is positive on the fundamental outlook for U.S. steel as a whole, the analyst thinks flat-rolled steel prices have more near-term upside potential than rebar prices following the latter's outperformance YTD, a viewpoint that appears to differ from consensus.

La Femina also maintained a Buy rating on Steel Dynamics (STLD [https://seekingalpha.com/symbol/STLD]) while raising his price target to $180 from $165 after increased his free cash flow forecast, and reiterated a Hold rating and $13 PT on Cleveland-Cliffs (CLF [https://seekingalpha.com/symbol/CLF]) based on rising domestic steel capacity, headline risk related to trade wars, and the state of the balance sheet.

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