United States Steel: The Giant Of American Steel Production
Summary
- United States Steel Corporation has a strong balance sheet, which will solidify its position in a recession.
- United States Steel is trading at just 0.64x book value, despite having a strong balance sheet.
- Q4 earnings are coming, which will give us additional information about how the company will manage its headwinds.
- As of now, we believe U.S. Steel is a hold but could turn into a strong long-term buy in the future.
Lim Weixiang - Zeitgeist Photos
United States Steel: The Giant of American Steel Production
United States Steel Corporation (NYSE:X), or U.S. Steel for short, is a name synonymous with American steel production. Founded in 1901 by industrialist Andrew Carnegie, U.S. Steel has grown to become the largest steel producer in the United States and one of the largest in the world. With operations spanning across the United States, Canada, and Central Europe, the company has a diverse product portfolio that includes flat-rolled, tubular, and plate steel, as well as other steel products and materials.
However, U.S. Steel isn't just a powerhouse in terms of production. The company has a strong presence in key industries such as automotive, construction, energy, and appliances, making it a vital player in America's economic growth. And with an annual raw steel production capability of 21 million net tons at its domestic facilities, U.S. Steel is well-positioned to meet the demands of a growing market.
Furthermore, U.S. Steel isn't content to rest on its laurels. The company has invested heavily in technology and innovation to improve the efficiency of its production process and reduce its environmental impact. This includes the implementation of new technologies such as Electric Arc Furnace (EAF) and the implementation of mini-mills, which allow the company to produce steel from scrap metal. These investments have transformed U.S. Steel into a more environmentally friendly and cost-efficient producer, positioning it well for future growth.
In short, U.S. Steel is a force to be reckoned with in the steel industry. With a rich history, a diverse product portfolio, and a commitment to innovation, the company has the potential to bolster any investment portfolio. So, if you're looking for a reliable and sustainable investment opportunity, look no further than "The Giant of American Steel Production" - United States Steel Corporation.
Why United States Steel is a Sound Investment Opportunity in the Steel Industry
United States Steel Corporation, is a leading American integrated steel producer with a solid track record of financial stability and growth. Despite its low price-to-book ratio of 0.64, the company represents a sound investment opportunity for those looking to diversify their portfolio with a reliable and sustainable stock.
One of the major factors that makes U.S. Steel a strong investment opportunity is the favorable market conditions in the steel industry, particularly considering the United States' plans to revitalize its infrastructure. With the new Mini Mill steelmaking facility set to come online in 2024, U.S. Steel is well-positioned to become the leading steel producer in the United States and sees a corresponding increase in demand for its products.
However, it's worth noting that the company's management team has a less-than-ideal track record and the dividend policy may not be as favorable for some investors.
Despite these limitations, the overall financial stability of the company and future favorable market conditions make United States Steel a viable investment opportunity. In light of this, it is our opinion that this stock is currently a hold for long-term investors looking for a reliable and sustainable investment opportunity in the steel industry.
Strong Financials: A Shield Against Economic Uncertainty
United States Steel Corporation, has had a remarkable run in recent years, thanks to the combination of elevated commodity prices and strong demand. This has resulted in the company being well on its way to their second-best year ever in company history.
One of the key factors that has contributed to U.S. Steel's success is its strong financials. With elevated commodity prices, the company has been able to clean up its balance sheet and greatly reduce its debt, with a level of just $721M according to their Q3 earnings. This is especially noteworthy for a company in the steel industry, where many companies carry relatively higher levels of debt.
U.S. Steel's balance sheet is solid, with total assets of around $20B, liabilities of $9,4B, and equity of around $10,5B. Their current liabilities only make up $4,1B, with the remaining being long-term debt that will not be due until 2026 and 2029. This solid balance sheet acts as a tremendous shield against a potential upcoming recession/economic downturn that many experts expect in Q2 2023.
In short, U.S. Steel's strong financials make it a reliable and sustainable investment opportunity, even in times of economic uncertainty. The company's ability to maintain a solid balance sheet in the midst of a challenging industry is a testament to its strength and resilience, making it a stock worth considering for any investor looking for stability in their portfolio.
An Undervalued Stock with Strong Financials and Growth Potential
United States Steel Corporation is a company that has consistently delivered strong financial results, despite the challenges of the steel industry. In 2021, the company's EBIT and EBITDA came out at $4.6B and $5.4B respectively, putting their EV/EBITDA ratio at 1.44, which is very attractive compared to the remaining of the industry, which averages an EV/EBITDA ratio of around 9.
Additionally, their P/E ratio supports the view of this being a relatively cheap stock, as it currently sits at 2.95 while the industry average is around 12. Their net income in 2021 came in at an impressive $4.2B with an earnings pr. Share at $13.22.
When comparing U.S. Steel to its closest domestic competitors Cleveland-Cliffs (CLF) and Steel Dynamics (STLD), it's clear that there is a decent amount of value to extract from the company. U.S. Steel's P/B, EV/EBITDA, and P/E ratios are lower than its competitors, while its EPS is higher.
X | CLF | STLD | |
P/B | 0.64 | 1.52 | 2.39 |
EV/EBITDA | 1.44 | 3.67 | 3.27 |
P/E | 2.95 | 4.46 | 4.75 |
EPS | $13.22 | $4.76 | $22.83 |
It's important to keep in mind, however, that using price-earnings-ratio to value cyclical companies such as U.S. Steel can be dangerous, as the macro behavior driving their sales will determine the direction this stock is moving.
2021 turned out to be a cash-generating year like no other for United States Steel, making $3.2B in free cash flow ("FCF"), mainly driven by high commodity prices. 2022 looks to be no different, as their H1 2022 results were amazingly impressive, however, Q3 2022 turned out to be a relative slump compared to the same quarter the previous year. We expect their fourth-quarter earnings to be in line with their Q3 results, which will still result in perhaps this company's second most profitable year.
U.S. Steel's impressive financial performance is highlighted by their ROIC and ROE, which are 32.2% and 46.3% respectively. The company also has an FCF yield, which as of the closing price on January 23rd sits at 3.7%. This is fairly low compared to other stocks we have covered, but X can be seen as a safe haven stock within your portfolio, which is why a high FCF yield isn't necessarily required.
U.S. Steel has also been making significant investments in their production facilities in recent years, both renewing and expanding their production. From 2021 to the end of 2022, the company has already spent $1.4B dollars with an estimated $2.5B still remaining to be spent on strategic investments. This current strategy positions the company to come out of the economic downturn that lies ahead in 2023 mainly through investments and bolstering the balance sheet, which strategically is a sound decision for a company in this position.
In conclusion, United States Steel Corporation is an undervalued stock with strong financials and growth potential. The company's commitment to strategic investments, strong financial performance, and a solid balance sheet make it a viable investment opportunity for those with a long time horizon looking for stability in their portfolio.
Record Cash and Liquidity Support Strategic Capex (Q3 2022 Earnings Presentation)
A Conservative Approach to Shareholder Returns
U.S. Steel is a company that is committed to returning capital to its shareholders. The company has implemented a relatively conservative buyback program and dividend payout, given the amount of cash they currently have on hand. As an investor, it would be desirable to see an increase in these returns in the near term.
However, it is unlikely that the company will change its current policies as outlined in their most recent earnings call presentation. U.S. Steel's management team is taking a conservative approach and focusing on bolstering the company's financial position in preparation for any potential economic downturns.
While the company's conservative approach to shareholder returns may be a concern for some investors, it's important to keep in mind that U.S. Steel is positioning itself for long-term stability and growth. By fortifying its balance sheet and making strategic investments, the company is positioning itself to weather any economic storms and come out stronger on the other side.
Returning Capital to Stockholders (Q3 2022 Earnings Presentation)
U.S. Steel: Positioned for Long-term Success
United States Steel Corporation, has been making strategic investments in their production facilities to take advantage of the increased demand for steel. With the United States' plans to revitalize its infrastructure using American-made steel and an increase in global demand for steel following an economic slowdown, U.S. Steel is well-positioned to benefit from these tailwinds.
Despite the fact that the global economy is expected to experience a downturn, U.S. Steel is positioned to outperform its competitors in the long term. During recessions and periods of economic stress, investing in a company with a strong balance sheet is always a wise choice. U.S. Steel's mini-mill is ready to start production, the company is seeing an increase in domestic demand for steel, and the global economy is expected to recover in the coming years.
Additionally, U.S. Steel is financially sound, with a current ratio of 2 and a D/E ratio of 0.37, meaning they have the ability to pay back their debt more than twice with their current equity levels.
In conclusion, United States Steel Corporation is a company that is well-positioned for long-term success. Its strategic investments, strong balance sheet, and tailwinds in the steel industry make it an attractive investment opportunity for those looking for stability and growth in their portfolio.
Preparing for the Future
As the global economy continues to recover, X is well-positioned to take advantage of the increase in demand for steel. However, it is important to note that the historically high commodity prices that have been driving the steel industry's success in recent years are not expected to be sustainable in the short term.
But the company's management team has been proactively preparing for this potential decline by taking measures to strengthen the company's financial position and set it up for success in the future.
Safely Navigating Current Headwinds (Q3 2022 Earnings Presentation)
The company forecasts a slowdown in growth in 2023 which seems likely given market conditions. Their Free Cash Flow (FCF) has slowed during H2 2022 and is expected to continue for the first half of 2023.
Despite this, the company is taking a long-term view and is making strategic investments in its production facilities and balance sheet to ensure that it is well-positioned for future growth. U.S. Steel's commitment to returning capital to shareholders, albeit a relatively conservative buyback program and dividend payout, and its strong financial metrics, such as its current ratio of 2 and D/E ratio of 0.37, are further evidence of its commitment to being prepared for any market conditions that may arise.
Navigating Short-Term Challenges for Long-Term Growth Potential
Despite these concerns, United States Steel Corporation's solid balance sheet and strategic investments in technology and innovation position the company to weather the current economic downturn and emerge as a leading steel producer in the United States and worldwide.
With the potential for increased demand for steel in the US and worldwide, as well as the company's commitment to returning capital to shareholders, United States Steel Corporation represents a sound long-term investment opportunity for those willing to weather the short-term market fluctuations. However, with a history of poor management and a lack of recent insider buying, investors should proceed with caution and thoroughly research the company before deciding.
Technical Analysis
When we look at the 1-year chart we can see that X is currently at an interesting point. Hovering around that resistance level (the purple line). As you can see we have drawn 3 potential scenarios.
It is important that we hold that long-term uptrend support, this could push us to higher highs and both the green and purple scenarios are possible in that case. If a recession would impact X harder than expected, the company could follow the red path, which means we could go back to the $17 range.
Stock Info with TradingView
Long-term we can see that the stock experienced a tremendous increase. The company went from $4.54 at the Covid lows all the way up to its $39.40 high of 2022, which is a 9x.
An incredible return, but we have to keep in mind that this stock is cyclical and a recession would hurt it significantly although it is a financially healthy company with a strong balance sheet.
As can be seen, the chart is above all of its WMA's. The MAs could provide support if we see a short-term decline in the stock. The Fibonacci levels are also possible resistance and support levels for X. A bounce of the $17 level would provide a great buying opportunity if the stock would revisit this level.
Stock Info with TradingView
Conclusion
In summary, it is common for stocks in the industry to experience significant declines during economic downturns yet exhibit strong recoveries subsequently.
United States Steel possesses a significant number of favorable conditions heading into the latter half of 2023, including the potential for steel prices to increase, the initiation of infrastructure rebuilding efforts in the United States, and the initiation of operations at a new mini mill.
However, there may be obstacles in the short-term, such as headwinds that may be partially mitigated by a resurgence of economic activity in China, although this is likely to be temporary in nature. In the event of a global recession, investing in firms with solid financial footing and undervalued stock prices may prove to be a shrewd strategy.
It is also worth noting that the shift towards renewable energy, specifically through wind power, will entail a substantial demand for steel, thereby augmenting potential investment opportunities in the company. Furthermore, the infrastructure bill also envisages a significant allocation of resources towards renewable energy, which may further boost investment prospects.
Therefore, this stock is currently a hold in the short term but could turn into a great long-term investment down the line for investors with a long time horizon.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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.