POSCO (PKX), the largest steel producer in Korea, remains well-positioned to leverage from its expansion into the fast-growing markets in the years ahead. But lackluster operating earnings guidance due to higher raw material costs and anticipated increases in Chinese steel volume exports are stiff headwinds for the second half of 2010.
Rising competition will result in significant price competition, declining margins and reductions in revenue. Moreover, concerns over gains/losses from volatility in foreign currency and the cyclical nature of the industry will restrict share price performances.
Thus, we downgrade our recommendation from Neutral to Underperform. Our $92.00 target price, 7.8X 2010 EPS, reflects this view.Zacks Investment Research
