United States Steel Corporation (X) is the producer and seller of flat-rolled and tubular steel products with production operations in the United States and Central Europe. The company operates through three segments — North American Flat-Rolled (Flat-Rolled), U.S. Steel Europe (USSE), and Tubular Products (Tubular). In addition, it provides railroad services and real estate operations.
Despite gaining 161.3% over the past three months, shares of X should continue to rally in the coming months on speculation that Democrats new control of both houses of Congress paves the path for President-elect Joe Biden to pass a massive infrastructure stimulus bill. Also, we think the company could witness a substantial surge in demand, with steel demand building steadily in the domestic as well as international markets.
X’s strategic investments and customer-centric business model have helped the stock gain 227.3% over the past six months. This impressive performance combined with several other factors has helped X earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates X:
Trade Grade: A
X is currently trading higher than its 50-day and 200-day moving averages of $14.61 and $9.48, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 161.3% return over the past three month reflects solid short-term bullishness.
For the fiscal third quarter ended September 30, 2020, X’s U.S. Steel Europe segment reported an EBIT of $13 million compared to a loss of $46 million in the quarter ended September 30, 2019. The company reported free cash flow of $76 million and working capital of $250 million over this period. Steel shipments rose 192.3% from the year-ago value.
In December, X announced that it had closed the sale of its Keystone Industrial Port Complex, its non-core real estate asset for approximately $160 million. This sale will allow the company to extract incremental value from its attractive portfolio of real estate assets. Also, X plans to use the proceeds from the sale to further enhance its strong cash position and fund the purchase of the remaining Big River Steel equity.
On November 25, the company announced the closing of $63.4 million of Environmental Improvement Revenue Bonds with a green bond designation. X intends to use the proceeds from the bond issue to partially fund work related to its new environmentally preferred, low-emission electric arc furnace at U. S. Steel’s Fairfield Works.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, X is well positioned. The stock is currently trading just 4.3% below its 52-week high of $23.28, which it hit on January 8.
The company’s tangible book value grew at a CAGR of 7.9% over the past three years, while its total assets increased at a CAGR of 5.9% over this period. This can be attributed to strategic acquisitions, increasing investments, and rapid expansions made by the company.
Peer Grade: C
X is currently ranked #10 of 39 stocks in the Steel industry. Other popular stocks in this industry are Companhia Siderúrgica Nacional (SID), Gerdau S.A. (GGB) and Steel Dynamics, Inc. (STLD)
While SID beat X by gaining 107.6% over the past year, GGB and STLD returned 6.9% and 16.6%, respectively, over this period.
Industry Rank: B
The Steel industry is ranked #68 of 123 StockNews.com industries. The companies in this industry are engaged in the manufacture, production and sale of steel and steel products worldwide. Steelmakers have been able to respond quickly to the sudden plunge in demand caused by the pandemic with capacity cuts. With the global economy recovering gradually, steel production and capacity utilization are picking up as the demand from key consuming industries returns slowly.
Overall POWR Rating: A (Strong Buy)
X is rated “Strong Buy” due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.
Bottom Line
The company’s recent acquisition of the balance of Big River Steel coupled with other investments could contribute immensely to its long-term growth. In addition to this, , optimism surrounding President Joe Biden’s $2 trillion infrastructure bill could translate into increased demand for the iconic steelmaker’s products.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is impressive for X. It has an average broker rating of 2.08, indicating favorable analyst sentiment. The consensus EPS estimate of $0.26 for the quarter ending March 31, 2021 represents a 135.6% improvement year-over-year. Moreover, X has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $2.90 billion for the next quarter represents a 5.4% increase from the same period last year.
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X shares were trading at $23.45 per share on Monday afternoon, up $1.16 (+5.20%). Year-to-date, X has gained 39.83%, versus a 1.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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