POSCO (PKX) lackluster operating earnings guidance — due to higher raw material costs and an anticipated increase in Chinese steel volume exports — for the second half of 2010 continue to generate headwinds.
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 have downgraded our recommendation to Underperform. Our $92.00 target price, 7.8X 2010 EPS, reflects this view.