Morgan Stanley Starts Schnitzer Steel Industries At Overweight

Says the U.S. steel exporter is an undercovered play on China

Morgan Stanley started covering Schnitzer Steel Industries (SCHN) with an overweight rating, explaining that the Portland, Oregon-based steel company is an undercovered and misunderstood China play.

Analyst R. Wayne Atwell says Schnitzer Steel is the largest US scrap exporter with a superior business model that has high barriers to entry. Meanwhile Chinese economic growth will drive structural increases in scrap steel prices, per-ton margins over the next 10 to 20 years. Atwell thinks cash will grow to $12/share over the next 2.5 years, providing funds for potential share repurchases and/or acquisitions in the fragmented scrap market. He sees upside potential to his $53 price target over the next 12 months.