U.S. Steel Stock Is An Economic Recovery Buy Here
MarketBeat.com | Feb 12, 2021 06:43AM ET
Steel producer United States Steel Corporation (NYSE:X) stock has seen a strong surge in 2021 followed by a sharp decline but still performing well against the benchmark S&P 500. The demand for steel is bolstered by the recovering automotive market, housing, construction, infrastructure, and consumer products. The Company’s new Big River Steel flex mill is the template moving forward to accommodate the global initiative for decarbonization through clean energy and sustainable materials, notably sustainable steel. Shares could get an ESG premium as they continue to migrate towards green processes.h2 Q4 FY 2020 Earnings Release /h2
On Jan. 28, 2021, U.S. Steel released its fiscal fourth-quarter 2020 results for the quarter ending December 2020. The Company reported an earnings-per-share (EPS) loss of (-$0.27) excluding non-recurring items versus consensus analyst estimates for (-$0.65), a $0.38 beat. Revenues fell (-9.3%) year-over-year (YoY) to $2.56 billion beating analyst estimates for $2.51 billion. The Q4 adjusted EBITDA came in at $87 million versus $86.1 million analyst estimates and a YoY improvement by $4 million.
h2 Conference Call Takeaways/h2U.S. Steel CEO, David Burritt, was resoundingly bullish moving forward:
“I am bullish about the strong market we are seeing, and we are positioned more strongly than ever to capitalize.”
The Company completed the Big River Steel transaction on Jan. 1, 2021. Big River Steel is the world’s first flex mill, which “merges the superior capabilities of integrated steel making with the agility of mini mill steel making”. It is also the only LEED certified steelmaker, with its sustainable steels. The recovery in Europe as prompted the Company to restart its third blast furnace in Slovakia.
h2 Secondary Offering/h2“The time is now to take sustainability to a new level in steel, and we look forward to boldly partnering with our customers to lead in this space.”
On Feb. 3, 2021, U.S. Steel commenced an upsized 42 million share secondary offering for gross proceeds of approximately $699 million, which would equate to around $16.46 per share. Shares fell on this news but has been hovering near the offering price level.
h2 Fundamental Triggers /h2The key fundamental components that can drive shares of U.S. Steel higher would be the combination of a weaker U.S. Dollar (tightening supply), economic growth (rising demand), and maintenance of the steel import tariffs (prevent cheap overseas steel dumping into the U.S.). This would result in tight supply, increased demand and elevated steel prices which would go straight to the bottom line. The U.S. steel tariffs are now in the hands of the Biden Administration and whether he will eliminate or amend them to appease foreign allies. While Biden has endorsed a “Buy American” theme, the steel tariffs are the only way to truly enforce this. On Feb. 4, 2021, The U.S. Court of International Trade upheld Section 232 national security tariffs on steel imports denying a steel importer’s challenge to the 25% tariffs. On the flipside, the global decarbonization movement collides directly with the majority of current steel making processes. Up to 70% of steel production still uses the processing of burning coal. The migration to sustainable steel is highlighted boldly by its Big River Steel flex mill, which is a critical template. This can bring an ESG premium to the shares. Investors looking for a value entry on the recovery can watch for opportunistic pullbacks in shares of U.S. Steel.
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