Does US Steel Look Cheap after the Sell-Off?


Oct. 22 2018, Updated 9:01 a.m. ET

US steel

In this part of the series, we’ll do a comparative analysis of steel companies’ forward EV[1. enterprise value]-to-EBITDA multiples.

U.S. Steel Corporation (X) is trading at a 2019 EV-to-EBITDA multiple of 3.33x, which is the lowest among the companies we’re covering in this series. AK Steel (AKS) is valued at 6.11x for its 2018 expected EBITDA and 5.43x for its 2019 consensus EBITDA. ArcelorMittal (MT) has a 2019 EV-to-EBITDA multiple of 4.11x. Nucor (NUE) and Steel Dynamics (STLD) have 2019 multiples of 6.1x and 5.9x, respectively.

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Is US steel cheap?

U.S. Steel Corporation looks undervalued when it comes to valuation multiples. But it’s a little tricky to value cyclical stocks since their valuation multiples tend to bottom out near cyclical peaks, and multiples are high near cyclical lows. As we’ve seen, US steel prices have peaked and should settle at more normalized levels.

U.S. Steel Corporation’s 2019 EBITDA estimates of $1.92 billion might appear to be on the higher side in light of the recent fall in US steel prices. We should remember that analysts’ earnings estimates tend to lag, and the markets reprice stocks long before analysts revise their earnings estimates. While Nucor and Steel Dynamics are expected to post year-over-year falls in their 2019 earnings, U.S. Steel Corporation’s 2019 earnings are expected to rise slightly compared to 2018.

While peak steel prices might be behind us, US steel could still offer value at the current prices. Let’s look more at that in the next and final part of this series.


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