US Investments And Domestic Sourcing Will Fuel Future Expansion

Key Takeaways

• Federal investments and regional sourcing trends are fueling growth opportunities for Metallus across infrastructure, clean energy, and defense markets, supporting volume and pricing power.
  
• Emphasis on high-margin specialty products, operational efficiency, and strong cash flow are driving improved profitability and enabling greater shareholder returns.
  
• Reliance on tariffs, cyclical markets, high fixed costs, and uncertain pricing create significant risks to Metallus' revenue stability, margin growth, and long-term competitiveness.

Catalysts

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

• Recent and ongoing federal investments in U.S. infrastructure, clean energy and defense-including direct government funding for Metallus' new production assets-are expected to drive sustained growth in order volumes and revenue as infrastructure and munitions programs ramp up.
  
• Higher domestic content requirements and persistent steel tariffs are motivating manufacturers to prioritize resilient, regionally sourced supply chains, positioning Metallus for market share gains as U.S. and European customers shift spend to local suppliers-likely supporting both top-line growth and pricing power.
  
• Metallus' focus on higher-margin value-added products such as vacuum arc remelt (VAR) steels and specialty alloys, particularly for aerospace and defense, enables the company to improve its product mix, enhancing average selling prices and net margins as these secular growth markets expand.
  
• Operational efficiency initiatives-including automation, shop floor process optimization, and cost-reducing capital investments (e.g., new grinding line, reheat and roller furnaces)-are projected to yield at least $10 million in annual cost savings and better utilization, directly boosting EBITDA margins and earnings starting in 2026.
  
• Strong free cash flow and reduced pension liabilities, coupled with aggressive share repurchases (diluted share count down 25% since 2021), position Metallus to increase shareholder returns, driving higher EPS and return on equity over the medium-to-long term.

Metallus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Metallus's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.1% today to 14.3% in 3 years time.
• Analysts expect earnings to reach $230.9 million (and earnings per share of $5.52) by about September 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 analysts price target, the company would need to trade at a PE ratio of 4.4x on those 2028 earnings, up from -30.6x today. This future PE is lower than the current PE for the US Metals and Mining industry at 22.5x.
• 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 7.42%, as per the Simply Wall St company report.

Metallus Future Earnings Per Share Growth

Risks

• Metallus' recent shipment and order growth is partly driven by the current domestic tariff environment, but there is significant uncertainty about the final terms and longevity of trade restrictions; any lowering or removal of tariffs would likely increase import competition, reducing demand for domestic producers and adversely affecting revenue and margins.
  
• The company's heavy reliance on cyclical end markets such as automotive, energy, and aerospace & defense exposes results to abrupt changes in demand due to economic downturns or sector-specific slowdowns-recent commentary suggests order growth is tied to resolving temporary supply chain issues and inventory destocking, which could reverse and impact revenue stability.
  
• While Metallus is undertaking cost and operational optimization initiatives, ongoing high fixed costs (maintenance, labor contracts, pension obligations) and rising utility costs (loss of favorable electricity contract) could pressure overall earnings and limit margin expansion, especially if utilization rates do not reach targeted levels.
  
• There is evidence that recent market share gains represent a recovery of previously lost business rather than true expansion, highlighting ongoing competitive pressures among domestic producers that risk continued margin compression if pricing becomes the primary differentiator.
  
• Medium
• to long-term visibility on price realization remains weak, as 70% of volumes are under contract, but spot pricing is volatile and concentrated; pending contract renewals and customer hesitancy due to unclear tariff policies increase the risk of price and volume degradation, potentially limiting top-line growth and impacting future profitability.

Valuation

• The analysts have a consensus price target of $21.0 for Metallus based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $230.9 million, and it would be trading on a PE ratio of 4.4x, assuming you use a discount rate of 7.4%.
• Given the current share price of $16.32, the analyst price target of $21.0 is 22.3% 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.