POSCO - ADR (PKX) reported disappointing financial results in 2011 with the company's net earnings falling roughly 12% year over year. Weak margins due to higher raw material costs led to the downfall.
Though the company's focus on expansion in the fast growing markets, such as graphene and synthetic natural gas, and investments in raw materials should be advantageous, the positive momentum suffers a setback in the near term due to global uncertainty.
Steel demand remains soft and lags behind supply, which in turn is hurting prices. Competition is increasing, impeding growth and restricting the stock's performance. Thus, we lower our recommendation from Neutral to Underperform with a 6-month target price of $77 per ADR.
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