United States Steel Looks Good After Earnings

May. 1.13 | About: United States (X)

United States Steel (NYSE:X) recently reported its first quarter earnings. The company finished the quarter with an adjusted net loss of $51 million, or $0.35 per diluted share. Analysts were expecting a loss of $0.19 per share (analyst estimates sourced from Yahoo! Finance). The stock finished the day of the release with a gain of 1.48%. Like other companies that produce basic materials, U.S. Steel's shares have had a difficult year. The stock is down more than 25% year-to-date. In April, X was trading at the levels not seen since March of 2009.

Analysts expect X to become profitable in the next quarter. The average estimate for X is to report a $0.23 per share profit in the second quarter of this year. It is important to mention that estimates are often changed. Analyst estimates for second quarter 2013 have fallen 41% during the last 90 days. Estimates for the whole year 2013 have declined 28% during the same time period.

During the last quarter, U.S. Steel has improved its cash position. At the end of the quarter, X had $733 million in cash and $2.5 billion total liquidity in comparison to $570 million in cash and $2.4 billion of total liquidity at the end of 2012. When the company is losing money, liquidity is one of the things to watch.

U.S. Steel has managed to refinance its debt on very comfortable terms. X issued $275 million of 6.875% senior notes due April 1, 2021 and $316 million of 2.75% senior convertible notes due April 1, 2019. The proceeds were used to repurchase $542 million of senior convertible notes due 2014. There is $321 million of these 2014 notes left to be repurchased. If we look at the debt schedule, we find that it is very comfortable. The next scheduled repurchase is $148 million of province notes that are due 2015. The following big amount of debt worth $450 million is due 2017. I think that debt is not a problem for X. When one looks at the depressed stock price of X, one can assume liquidity or solvency issues. There are none.

U.S. Steel trades with an 8.60 forward P/E. We can compare this ratio to other U.S.-based steel makers. AK Steel (NYSE:AKS) has 7.61 forward P/E, Nucor (NYSE:NUE) trades at 11.92 forward P/E, Steel Dynamics (NASDAQ:STLD) has 9.46 forward P/E. X has been underperforming this year in comparison to its peers. NUE and STLD are up 1.89% and 10.34% respectively. AKS is down 27.17%, but has recently gained some upward momentum.

I see nothing wrong with X. The stock is cheap. I do not think those bargain prices would last forever. In my opinion, X is a buy in the $17-$19 range.

Disclosure: I am long AKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.