Four Risks U.S. Steel Corporation Investors Should Know Before Q4 Earnings

U.S. Steel Corporation (X) will likely report its fourth-quarter earnings on Jan. 28. There are the four risks that the company needs to address.

Mohit Oberoi, CFA - Author
By

Jan. 26 2021, Published 9:31 a.m. ET

U.S. Steel Corporation's Upcoming Q4 Earnings
Source: istock, United States Steel Corporation Facebook

U.S. Steel Corporation (X) has scheduled its fourth-quarter earnings for Jan. 28. Overall, 2020 was very volatile for the stock. It fell to multi-year lows in March amid the crash in U.S. stock markets. However, the stock has doubled since Joe Biden’s election. As U.S. Steel Corporation investors await the company's fourth-quarter earnings, there are four key risks that need to be addressed. 

Article continues below advertisement
Article continues below advertisement

Despite Trump’s claims of reviving the U.S. steel industry, X stock underperformed badly during his tenure. Even Nucor and Steel Dynamics (STLD) underperformed the S&P 500 during Trump’s presidency. While Cleveland-Cliffs (CLF) rose sharply, it only transformed into a steel company in 2019.

Article continues below advertisement

U.S. Steel Corporation's Q4 earnings

First, let's look at U.S. Steel Corporation's fourth-quarter earnings estimates and guidance. The analysts polled by TIKR expect the company to post revenues of $2.5 billion in the fourth quarter, which is 11.1 percent lower compared to the same quarter in 2019.

Analysts expect X to report an EBITDA of $96 million in the fourth quarter compared to only $4 million in the third quarter of 2019. In December, X said that it expects to post an adjusted EBITDA of $55 million in the quarter. That said, U.S. Steel Corporation usually provides conservative guidance, which it tends to beat in the actual earnings.

Article continues below advertisement
Article continues below advertisement

Key risks for X stock investors

While X stock has risen sharply from its 2020 lows and looks like a good commodity stock to buy for 2021, there are four risks that investors should watch:

  • Peaking U.S. steel prices
  • Rising coronavirus cases in China
  • Increased U.S. steel production capacity
  • Biden’s policies on steel tariffs
united states steel corporation x stock price
Source: TIKR
Article continues below advertisement

U.S. steel prices in 2021

U.S. steel prices have risen sharply over the last year and are near multi-year highs. However, the prices are near the peak and more upside looks limited from these levels. As 2021 progresses, we could see prices taper down especially in the second half of the year when the demand tends to be seasonally lower.

Article continues below advertisement

Rising coronavirus cases in China are a risk for X stock

The number of coronavirus cases has been rising in China. If the cases rise more and trigger major lockdowns, it could hit China’s economic activity, which would also impact steel prices in China. Any fall in Chinese steel prices is negative for U.S. steel prices.

Article continues below advertisement

Increase in U.S. steel production capacity

Over the last two years, U.S. steel companies including X, NUE, and STLD have announced several new projects to augment their capacity. As these projects start coming online, it would lead to more supply of steel in the U.S. markets and could pressure prices. Given X’s relatively high-cost operations compared to minimills, it faces greater risk from any price war.

Article continues below advertisement
Article continues below advertisement

X stock investors need to watch Biden’s policy on steel tariffs

President Biden isn't in a hurry to waive off the tariffs on Chinese goods that the Trump administration imposed. However, steel and aluminum could be a different ballgame. The countries impacted the most by the tariffs are the friendly nations that Biden wants to take along in devising a China strategy.

If Biden goes ahead and repeals Section 232 tariffs on U.S. steel imports, it would be a short-term negative for domestic producers like X and NUE. During U.S. Steel Corporation's fourth-quarter earnings call, we will get more insights from management including on some of the above-mentioned risks.

Advertisement

Latest United States Steel Corp News and Updates

    Opt-out of personalized ads

    © Copyright 2024 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.