(Bloomberg) -- Steel stocks climbed in early U.S. trading after U.S. Steel Corp. said it will idle three blast furnaces in a decision cheered by analysts, including the group’s biggest bear Vertical Group, which double upgraded the stock to buy from sell.

U.S. Steel shares gained 7% in early trading, despite the company missing Wall Street’s expectations for its second quarter guidance. The steelmaker said in a statement that it will idle two blast furnaces in the U.S. and one in Europe “to better align our global production with our order book” due to current market conditions.

Rival manufacturer AK Steel Holding Corp. added 3.6% in early trading, while Nucor Corp. gained 2.5% and Steel Dynamics Inc. rose 2.3%. The NYSE Arca Steel Index, fell 0.3%, down roughly 25% from a 2018 peak.

Here is what the analysts are saying about U.S. Steel stock and the implication of its supply reduction on the sector:

Vertical Group, Gordon Johnson

U.S. Steel’s second quarter adjusted Ebitda and earnings per shares were a “clear miss.” But the company did the “unthinkable” by idling its two U.S. plants and one European plant. Johnson thinks this move may put the company on the wrong side of a Donald Trump tweet as it “has effectively given everyone the greenlight to defy Trump & cut jobs to keep profits in the green,” he writes. The move “is a buy-signal for depleted steel mill equities & a sell-signal for the materials that go into making steel,” he said.

Double upgrades from sell to buy and raises price target to $17 from $6.

Longbow Research, Chris Olin

U.S. Steel’s production curtailments offset its guidance miss and the move could be the “adrenaline shot this industry needed” as it will remove about 1.3 million tons of capacity. Olin still expects ArcelorMittal to announce domestic production curtailments for the third quarter, potentially adjusting supply at Cleveland and/or Indiana Harbor. “The removal of 4-5 million tons of available steel sheet capacity (for both companies), would be more than our industry contacts have been looking for,” Olin said.

Remains neutral rated with no price target.

KeyBanc Capital Markets, Philip Gibbs

U.S. Steel’s action “moved the sector one step away from the nucleus of The Steel Twilight Zone haze.” Gibbs thinks this cut is a start, and ArcelorMittal is expected to join shortly in the “supply discipline parade,” given a weak U.S. light passenger vehicle market. The move is a positive development for the U.S. sheet market, but leaves U.S. Steel with very little wiggle room for mistakes on production.

Continues to rate sector weight with no price target.

Bank of Montreal, David Gagliano

The supply cut announcement by U.S. Steel is likely a signal that steel pricing is reaching a bottom. He notes that this move comes at a time when other data points for the industry have slowly been stabilizing. He thinks it’s positive for most steel equities, but thinks Steel Dynamics Inc. and Stelco Holdings Inc. have the best risk/reward among peers.

Maintains market perform rating and price target of $17.

Deutsche Bank, Chris Terry

U.S. Steel’s reduced production may remove higher-cost production from the company’s portfolio and could be a positive data point that steel price declines are near an end. Terry thinks that U.S. Steel is still a challenged company in the current market due to its debt and below-average margins compared to peers.

Maintains sell rating.

Jefferies, Martin Englert

The supply response will likely help move the steel sector towards a better balanced market and may support prices in the second half of the year. Recommends investors increase exposure to U.S. steel equities, with his top picks Nucor, Steel Dynamics and Commercial Metals Co.

Remains hold rated with a price target of $18.

To contact the reporter on this story: Aoyon Ashraf in Toronto at aashraf7@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jennifer Bissell-Linsk, Scott Schnipper

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