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.