United States Steel Corp

X Details

United States Steel Corp (NYSE: X) is a US-listed integrated steel producer. The Company is engaged in the production of tubular and flat-rolled products and has  operations across the United States and central Europe.

Q2FY21 Report (Ended June 30, 2021)

Turnaround in Net Earnings: The company reported second-quarter 2021 net earnings of $1,012 million against a loss of $589 million in the pcp. Adjusted net earnings were  $964 million compared to an adjusted loss of $469 million in the pcp. The  company delivered an adjusted EBITDA of $1,286 million for Q2FY21 compared to a loss of $264 million in the pcp. Its record adjusted EBITDA margins, highlight  the power of a combined integrated and mini mill footprint.

Key Data (Source: Company Reports)

Outlook:

The company believes the supportive environment for the steel industry to continue in the upcoming years as well, thereby, helping the company to further strengthen its financial position. The present  financial strength supports  the company’s plan  of $1 billion  additional debt reduction over the next 12 months, which is in addition to the $2.2 billion of debt reduction it has already committed to or delivered to date.

Key Risks:

• Any change in regulations and government policies especially on rolling back monetary and fiscal stimulus could affect the overall business of the Company.
• The Company is exposed to several operational risks associated with geological and weather conditions.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Stock Recommendation:

The company’s gross margin and EBITDA margin for Q2FY21 stood at 26.8% and 24.8%, lower than the industry median of 48.1% and 40.1%, respectively. Its current ratio at the end of Q2FY21 stood at 1.27x lower than the industry median of 2.70x reflecting lower liquidity than its peers in the industry.

The stock has been valued using EV/Sales multiple based illustrative relative valuation method and there are expectations that target price might witness a fall of low double-digit (in percentage terms). A discount has been applied to EV/Sales Multiple (NTM) (Peer Average) considering the operational risks.

Considering the aforesaid facts, and current trading levels, we give a “Sell” recommendation on the stock at the current market price of $30.22 per share (US time: 12:09 pm) on August 18, 2021.

Daily Technical Chart (Source: Refinitiv)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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