Global Infrastructure And Electrification Will Transform Steel Markets

Key Takeaways

• Strong positioning in key sectors and infrastructure trends, combined with efficiency gains, points to significant upside in revenue, margin expansion, and sustainable profit growth.
  
• Robust balance sheet and completed de-leveraging enable capital returns to shareholders and strategic acquisitions, supporting long-term value creation and EPS growth.
  
• Heavy dependence on cyclical industries, regulatory and market headwinds, and limited diversification expose Metallus to long-term revenue, margin, and profitability risks.

Catalysts

Manufactures and sells alloy steel, and carbon and micro-alloy steel products in the United States and internationally.

• Analyst consensus is that tariffs and trade protection will bolster domestic steel demand, but the actual impact may be far greater as inventory overhang is absorbed and once pending agreements are finalized, large OEMs waiting on the sidelines could unleash a wave of incremental orders-potentially driving revenue significantly higher than currently modeled.
  
• While analysts broadly expect new energy and advanced material programs to reach $20 million in annual sales by 2026, sustained momentum in VAR steel and deepening relationships in aerospace, defense, and high-pressure energy applications point to a much broader revenue opportunity, easily eclipsing these targets and offering material upside to both revenue and gross margin forecasts.
  
• Global infrastructure and electrification trends are set to accelerate, and Metallus' current order book-already double year-ago levels and with extended lead times-suggests they are positioned as a critical supplier for infrastructure renewal, electric vehicles, and grid modernization, translating into multi-year visibility and pricing power that supports both topline growth and durable margin expansion.
  
• Recent advances in operational efficiency, external manufacturing optimization, and fully commissioned automation are on the cusp of transforming Metallus' cost base, pointing to a step-change in EBITDA margins and sustainable profit growth as $10 million in recurring savings, and additional benefits from the next phase of digital and automation investments, are realized in 2026 and beyond.
  
• With de-leveraging complete, a robust cash balance, ~$93 million in remaining buyback authorization, and major CapEx funded by the government, Metallus is in a unique position to aggressively return capital to shareholders and pursue bolt-on value-added acquisitions, with a likely positive impact on EPS growth and long-term value creation.

Metallus Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Metallus compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Metallus's revenue will grow by 15.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -2.1% today to 16.9% in 3 years time.
• The bullish analysts expect earnings to reach $276.5 million (and earnings per share of $6.62) by about August 2028, up from $-22.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 4.2x on those 2028 earnings, up from -30.4x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.2x.
• Analysts expect the number of shares outstanding to decline by 1.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.34%, as per the Simply Wall St company report.

Metallus Future Earnings Per Share Growth

Risks

• Metallus's heavy reliance on cyclical industries such as automotive, oil and gas, and aerospace makes its revenues and earnings particularly vulnerable to economic downturns or periods of weak infrastructure investment that could be exacerbated by long-term stagnation or recession in developed economies.
  
• Increasing global decarbonization efforts and the proliferation of climate-focused regulations may result in tightening emission standards, new compliance obligations, and shifting customer preferences away from traditional metals, which could constrain market access, raise costs, and negatively affect Metallus's net margins over time.
  
• The advancement and adoption of alternative materials, such as composites, ceramics, and synthetics, may secularly erode demand for Metallus's core specialty steel and bar products, potentially resulting in long-term revenue declines or stagnant growth despite short-term gains.
  
• Metallus remains exposed to persistent pricing pressure and margin compression from ongoing global steel and metals overcapacity-particularly from lower-cost regions like China-while its relatively limited product and geographic diversification versus peers increases earnings and cash flow volatility.
  
• The company faces structural risks related to legacy pension obligations and potentially rising benefit costs with an aging workforce, which could gradually weigh on net margins and compress long-term profitability, especially if investment returns underperform or actuarial assumptions shift unfavorably.

Valuation

• The assumed bullish price target for Metallus is $24.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Metallus's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $24.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $276.5 million, and it would be trading on a PE ratio of 4.2x, assuming you use a discount rate of 7.3%.
• Given the current share price of $16.19, the bullish analyst price target of $24.0 is 32.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.