U.S. Steel: Is It Time to Get Greedy?



U.S. Steel

As we discussed in the previous part, U.S. Steel (X) has fallen almost 20% from its 2019 highs. Other steel and iron ore names including AK Steel (AKS), Cleveland-Cliffs (CLF), and Nucor (NUE) have also seen negative price action this month. Concerns about a global slowdown and the broader market sell-off seem to be fueling steel companies’ negative price action. When markets get fearful, is it time to get greedy?

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Steel prices

US steel companies have announced price hikes this year, which seem to be partially sticking. The spot hot-rolled coil prices have bounced back above $700 per ton. Looking at the global environment, the spike in seaborne iron ore prices might provide some support to steel prices. While steel prices might not rally due to higher iron ore prices, it would help put a floor below steel prices.

2019 outlook

U.S. Steel expects its 2019 flat-rolled shipments to rise to 11.5 million tons from 10.5 million last year. However, the company’s Europe shipments are expected to fall this year. On the cost side, U.S. Steel should see higher costs due to higher coal and labor costs. The analysts polled by Thomson Reuters expect U.S. Steel to post an EBITDA of $1.26 billion in 2019—compared to $1.76 billion last year. The analysts lowered U.S. Steel’s earnings estimates over the last month.

The estimates appear on the lower side looking at the current environment. U.S. Steel seems to offer a reasonable value with a 2019 EV-to-EBITDA multiple of 3.8x. Investors might want to get greedy on U.S. Steel looking at its depressed valuation and the outlook for steel prices.

Next, we’ll discuss how analysts see ArcelorMittal (MT).


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