What Could Boost U.S. Steel Corporation’s Depressed Valuation?



Valuation upside

There are several metrics that can be used to value a company. For capital-intensive industries like steel, the forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is the preferred valuation metric.

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Comparative analysis

U.S. Steel Corporation (X) is valued at an EV of 4.35x its 2018 consensus EBITDA and 4.13x its 2019 expected EBITDA. Notably, the stock is the least expensive stock in our select group of steel stocks based on the forward EV-to-EBITDA multiple. Nucor (NUE) is the most expensive stock in our coverage with a 2018 EV-to-EBITDA multiple of 6.44x. AK Steel (AKS) and Steel Dynamics (STLD) are trading at 2018 EV-to-EBITDA multiples of 6.42x and 6.22x, respectively. ArcelorMittal (MT) is valued at an EV of 5.01x its 2018 consensus EBITDA.

Management’s take

U.S. Steel’s management alluded to the company’s low valuation multiples during the 1Q18 earnings call. David Burritt, U.S. Steel’s CEO, said, “We’re going to prove to people that we’re going to be able to make money in trough. And when you do that kind of thing, that’s when you get the kind of EBITDA multiple that you can be proud of. And so we’ve got some work to do. This is a hard journey, but it’s a very focused, disciplined journey and we’re doing everything to get us there.” Burritt was pointing to U.S. Steel Corporation’s asset revitalization plan. Under the plan, the company expects a structural increase in its earnings.

Next, we’ll discuss U.S. Steel Corporation’s growth drivers after its dismal 2018 performance.


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