Two S&P/ASX 200 Index (ASX: XJO) shares were just raised to an outperform rating by Macquarie.
One is tipped for a 10% potential upside. The other with a 19% potential upside.
And both ASX 200 shares have a large footprint in global steel markets.
Any guesses?
If you said BlueScope Steel Ltd (ASX: BSL) and Sims Ltd (ASX: SGM), go to the head of the virtual class.
Now, here's why Macquarie is bullish on the outlook for both companies (courtesy of The Australian).
Why these ASX 200 shares are tipped to outperform
Macquarie just upped its price target for Bluescope from $19 to $24 a share.
The Bluescope share price is up 1.8% today at $21.86. That represents a 9.8% potential upside for this ASX 200 share from current levels.
The Australian-based steel manufacturer supplies global markets, with operations across the world, including in the United States.
And it's the strength of the US steel market that saw Macquarie analysts upgrade their outlook for Bluescope.
"US steel price trends have remained strong, providing ongoing spot EPS (earnings per share) support," the broker said.
"While economic conditions are uncertain, and we expect some price subsidence, the case for rerating is growing as a broader recovery approaches," Macquarie added.
Amid that broader recovery, Macquarie's analysts are expecting to see Bluescope's earnings recovery start in H2 of FY 2024.
"Even if prices weaken near term, as our team expects, we see price recovery into FY25 – our NPAT (net profit after tax) estimates are +45% ahead of the street. In fact, we find it curious that street forecasts currently foresee very little cyclical recovery," they said (quoted by The Australian).
In FY 2023, Bluescope reported underlying NPAT of $1.1 billion. The Bluescope share price is up 30% year to date.
Which brings us to Sims, the second ASX 200 share receiving a major upgrade from Macquarie.
The broker upped its price target for Sims to $17.30 per share. The Sims share price is up 0.4% today at $14.54. That implies a 19% potential upside from current levels.
The ASX 200 share, formerly known as Sims Metal Management, also has a lot of exposure to the steel market. Sims acquired the US company Metal Management in 2008 and is now the largest listed metals and electronics recycler in the world.
And FY 2023 saw more strategic acquisitions targeting long-term growth in the US domestic scrap metal market.
The ASX 200 share reported NPAT of $157 million in FY 2023.
The Sims share price is up 12% year to date.
