Why the BlueScope share price is outperforming today

The BlueScope Steel Limited (ASX: BSL) is among the best performing stocks today even as the market quickly lost steam to close in the red.

Brendon Lau

Brendon’s passion for shares started by accident in 2003 and he has worked in various roles around capital markets ever since as a trader, stock analyst and markets reporter with the Australian Financial Review. Most of his wealth has come from share investing than any other asset class, and that has given him the financial freedom not to work full-time, if he chooses to. Brendon is a medium to long-term investor who aims to hold positions for a year or longer and is focused on fundamental analysis, although he will occasionally use technical indicators to time his entries and exits. Brendon has an MBA from Melbourne Business School and is RG 146 certified. He lives in Melbourne with his wife, three kids and two dogs.

Published July 20, 2020 4:46 pm AEST

The BlueScope Steel Limited (ASX: BSL) is among the best performing stocks today even as the market quickly lost steam to close in the red.

Shares in the steel building products maker jumped 3% to $11.58 ahead of the market close to become the fourth best performer on the S&P/ASX 200 Index (Index:^AXJO).

The only stocks to beat BlueScope are the Resolute Mining Limited (ASX: RSG) share price, the Afterpay Ltd (ASX: APT) share price and the NRW Holdings Limited (ASX: NWH) share price. Even then, these ASX stocks aren't ahead by much more.

In contrast, the top 200 stock benchmark fell 0.4% after briefly making gains in early trade on Monday.

man holding 1st place medal against backdrop of sunset — Image source: Getty Images

Better than expected earnings

The surge in interest in BlueScope comes after brokers passed judgement on the stock following the company's trading update on Friday.

The analysts at Macquarie Group Ltd (ASX: MQG) lifted its price target on the stock to $12.55 from $12.20 and reiterated its "outperform" recommendation on the stock.

The broker noted that the update was better than expected and believes Australian housing demand will remain resilient.

Upside risk from US steel spreads

Credit Suisse echoed a similar optimism when it repeated its "outperform" rating on the stock. The broker pointed out that BlueScope's second half earnings before interest and tax (EBIT) of $260 million was 40% above consensus forecasts and a 27% beat on its estimates.

It also believes that US steel spreads are unsustainably low and any recovery on that front in FY21 presents upside risk to its $12.80 price target on the stock.

"We view BSL as a high quality cyclical exposure," said Credit Suisse. "Its trading performance in what has been a very challenged period for markets in 2H20, particularly in the US, further endorses that quality view."

It also helps that BlueScope holds net cash of $100 million on its balance sheet as that will help it see through the uncertain COVID-19 recovery.

Another target price upgrade

Meanwhile, UBS also upped its price target on BlueScope by 30 cents to $11.80 a share as its second half EBIT was $100 million above what it was expecting.

The beat is largely driven by BlueScope's Building Products Asia & North America division, which benefitted from a better than expected recovery in China and improved margins in North America.

However, with the BlueScope share price trading close to the broker's price target, UBS kept its "neutral" recommendation on the stock.

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