United States Steel Corporation (X) is an American steel producer based in Pittsburgh, Pennsylvania, that operates in the U.S. and Central Europe.
I am neutral on United States Steel Corporation as its cheap-looking valuation multiples, discount to the average price target, and leading industry position are offset by the industry’s unpredictability and Wall Street’s neutral stance.
Strengths
U.S. Steel is the second-largest steel producer in the U.S. after Nucor Corporation (NUE) and the 38th largest in the world. Once, it was credited as the largest steel producer and corporation in the world with a market capitalization of $1.4 billion, making it the world’s first billion-dollar company.
Recent Results
U.S. Steel reported a net income of $2 billion in its third quarter of 2021 compared to the net loss of $234 million it incurred in the third quarter of 2020.
The company’s average realized price for the Flat-Rolled segment was $1,325 per net ton (pnt) compared to $712 pnt in Q3 2020. Its Mini Mill segment generated an average realized price of $1,517 pnt, while the U.S. Steel Europe segment realized $1,143 pnt compared to $608 pnt in last year’s comparable period. In the Tubular segment, the average realized price was $1,702 pnt in the third quarter of 2021 compared to $1,230 pnt in the comparable period.
The company’s total capital expenditure amounted to $176 million in the third quarter of 2021 compared to $136 million in the third quarter of 2020. Total operating expenses amounted to $3.6 billion compared to $2.6 billion in the comparable period.
As of September 30, 2021, cash and cash equivalent amounted to $2.04 billion, and total assets were valued at $17.3 billion at the end of the quarter.
Valuation Metrics
X stock is difficult to value given its dramatic cyclicality. Still, it looks reasonably valued at the moment as its forward enterprise-value-to-EBITDA ratio is currently 1.38x, and its forward price-to-normalized-earnings ratio is only 1.71x compared to its historic average multiple of 12.64x.
That said, the total return outlook is hard to project, given that its profitability and overall performance have proven to be very choppy over time.
Wall Street’s Take
Turning to Wall Street, United States Steel earns a Hold consensus rating, based on two Buys, three Holds, and two Sells assigned in the past three months. Additionally, the average United States Steel price target of $28.00 puts the upside potential at 19.4%.
Summary and Conclusion
U.S. Steel is a leading steel company and currently trades at a very cheap multiple. Furthermore, its average price target implies that the stock could see decent upside over the next year.
That said, Wall Street analysts are overall neutral on the stock. The company is tough to predict, given the industry’s cyclicality. As a result, investors might want to wait for a larger margin of safety before considering a position.
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Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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