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Bear of the Day

POSCO (PKX) reported disappointing financial results in the first quarter 2012 with the company's net earnings falling roughly 41% year over year. Revenue growth was flat while weak margins due to higher raw material costs led to the downfall. Moreover, global uncertainity leading to soft steel demand remains a major growth impediment.

To add to the peril, competition is also increasing in the industry. Thus anticipating a lack of growth catalysts, we maintain an underperform recommendation on the stock. Despite the negatives, benefits arising from wide regional diversifications, higher proportion of value-added products in the product mix and new facility additions cannot be overlooked.

POSCO's current trailing 12-month earnings multiple is 9.6x, compared with the 12.1x for the peer group and 13.1x for the S&P 500. Our $73.00 target price, 9.6x 2012 EPADR, reflects our Underperform recommendation.

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