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Are Analysts Conservative with U.S. Steel’s 4Q16 Estimates?

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U.S. Steel’s 4Q16 estimates

There are several metrics you can use to measure an enterprise’s profitability. Net profit is widely used to measure a company’s profitability. For companies in the commodities space (XLB) like ArcelorMittal (MT), Nucor (NUE), and AK Steel (AKS), EBITDA (earnings before interest, tax, depreciation, and amortization) is generally used.

According to data compiled by Thomson Reuters, analysts expect U.S. Steel Corporation (X) to post adjusted EBITDA of $178 million in 4Q16 and $254 million in 1Q17. In contrast, the company posted adjusted EBITDA of -$13 million in 4Q15 and $272 million in 3Q16.

During its 3Q16 earnings call, U.S. Steel gave fiscal 2016 EBITDA guidance of $475 million. It implies 4Q16 EBITDA of $176 million. Analysts expect U.S. Steel’s 4Q16 EBITDA to be slightly higher compared to the company’s guidance.

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Steel prices

US steel prices fell sharply in 3Q16 and eroded most of their 1H16 gains. Most steel companies warned of their 4Q16 financial performance during their respective 3Q16 earnings calls. However, we saw a substantial improvement in US steel prices last month. Donald Trump’s election was another catalyst that supported steel prices. Higher steel prices would support steel companies’ earnings in 4Q16.

In our view, U.S. Steel’s EBITDA estimates could be somewhat conservative looking at the steep increase in steel prices. Although the full impact of higher spot steel prices in November and December would be reflected in steelmakers’ 1Q17 earnings, it would be safe to assume that some impact could well be visible in U.S. Steel’s 4Q16 EBITDA.

In the next part of this series, we’ll look at the key updates that markets might look for in U.S. Steel’s 4Q16 earnings call.

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