Your Earnings Season Preview: U.S. Steel

| About: United States (X)
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Past Performance: US Steel (NYSE:X) has missed EPS expectations eight times in the past four years, but they beat expectations each quarter last year. EPS have been in an upward trend over the past years as well, both on a quarterly basis and a YOY basis. Out of the last four first quarter earnings, US Steel has beaten expectations twice and missed twice.

The price of US Steel stock is near 52-week lows, less than $2.50 per share. With a worldwide economic slowdown, US Steel has suffered from austerity measures throughout Europe, the United States, and even some in China. Currently, US Steel is showing oversold and has support at the $19.60 level.

Fundamentals: US Steel has a current P/E of 18.2, a forward P/E of 20.9, a P/S of 0.15, and a PEG of 2.61. Meanwhile, the basic materials sector trades with a current P/E of 20.0 and a forward P/E of 13.2. For a comparison to the overall market, the S&P 500 trades with a current P/E of 20.6 and a forward P/E of 17.5.

The current metrics for valuation, the P/E and P/S ratios, show that the stock is moderately undervalued. A P/E less than both the industry average and the S&P 500 shows the undervalued nature of the stock. Combine that with the miniscule P/S of 0.15, and the potential for price appreciation is very apparent.

The Story: Macroeconomic factors have pushed US Steel's stock price down. The lofty PEG of 2.61 tells the story of shrinking demand for US Steel's product. The balance sheet is improving as well. Total liabilities have decreased by 7% YOY, and total current liabilities have decreased nearly 20% YOY. The accounts payable on the balance sheet have also decreased roughly 8% YOY. Management clearly has a focus on maximizing the return for shareholders when you consider the shrinking liabilities. Management understands the current economic landscape, and has illustrated the desire and wherewithal to reward shareholders for staying with them.

US Steel is also facing headwinds from the dreaded sequester in the United States. The sequester is set to cut $1 trillion in expenses, which includes defense spending and infrastructure spending. The sequester will directly impact US Steel's bottom line. Orders for steel to complete construction on bridges, military uses, and various other federally backed programs will be slashed, if not cut altogether. If US Steel can subsidize that loss of business with growth in the private sector or overseas, the "sequester effect" could be a moot point for X's bottom line.

How to Play It: The management team at US Steel has shown investors that they are more than capable of adapting to the economic condition of the times. US Steel will presumably continue to cut costs if need be, to continue to promote value for investors. If the worldwide economy has bottomed, US Steel is perfectly positioned both from a fundamentals standpoint as well as from a technical standpoint to reward a portfolio. My 52-week price target: $31.54.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in X over the next 72 hours. 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.

Additional disclosure: Always consult with a registered financial professional before adding a new position to your portfolio. Investing involves a significant risk of loss, as such never invest more than you can afford to lose.