The BlueScope Steel Ltd (ASX: BSL) share price has reclaimed some territory in December and jumped by 4% yesterday to close at $21.91.
The price of steel rebar has bounced off a low of 4303 Chinese Yuan per tonne (CNY/T) to now trade at more than 4651 CNY/T in December. That gain has inflected positively for the BlueScope share price.
Zooming out over a wider timer frame, it's clear there's been an all-out war between the bulls and the bears since late September.
BlueScope shares have traded within a tight range of around $1 over that time, meaning the trend channel has been largely sideways. Prices have been capped at $21 at the upper resistance mark and have hit and/or nudged past that level 10 times in the last 3 months. Meanwhile, prices have had good support at the $20 level from the bottom as well.
With this in mind, and with mixed commentary around the price of steel, let's look at what the experts are saying about the outlook for BlueScope as an investment in 2022.
What are the brokers saying?
According to the team at Jefferies, BlueScope could be a buy right now. The firm recently upgraded it to a buy, and now values the company 7.4% higher at $24.60 per share.
Jefferies notes that it overshot its estimates on how quickly spreads would compress when it downgraded BlueScope to a hold back in September.
Analysts at the firm reckon market expectations on steel and BlueScope are too pessimistic. They note that "estimates look much too low and seemingly ignore the growth initiatives being actively pursued by BSL across its portfolio".
These initiatives are yet to be priced in by the market, Jefferies says. It reckons 2022 might be a year of inflection for the BlueScope share price given the recent volatility, which could offer opportunities.
JP Morgan agrees with its fellow broker and also retained its buy rating in a recent note to clients. The firm has "factored in the latest forward curves for steel prices, along with lower iron ore prices", even when downgrading its CY22 iron ore price by 12% to $92/tonne.
The firm also made both 13% and 9% cuts to East Asia and US hot-rolled coil (HRC) prices that reduce its FY22/23 earnings before interest and taxes (EBIT) estimates by 6% and 25%, respectively. These now sit at 7% and 10% above the consensus figure, according to the release.
JP Morgan is heavily bullish on the BlueScope share price. It reckons the company will continue to top up its $500 million share buyback program by another $500 million–$750 million with the February results (equivalent to over 10% of market capitalisation).
It subsequently revised its free cash flow yield estimates to 29% in FY22 and 15% in FY23 – figures that help prop up BlueScope's buyback program – and adjusts its valuation on the company to $30 per share.
In fact, in the list provided by Bloomberg Intelligence, 62% of the brokers covering BlueScope support it as a buy coming into 2022. The remainder have it as a hold or sell.
The consensus price target is $25 from this list, implying around $3 of upside potential at the time of writing.
BlueScope share price summary
Despite the recent volatility, the BlueScope share price has climbed by more than 23% in the last 12 months. It has also rallied 25% this year to date.
In the last month, it has gained around 5%, beating the benchmark S&P/ASX 200 index (ASX: XJO)'s return in that time.
In early trade today, it is slipping 0.78% to $21.74.
