United States Steel Corp

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 have operations in Europe and North America.

Investment Highlights – United States Steel Corp – Buy at USD 17.90

• The Company showed business recovery sign in Q4 FY2020 with higher EBITDA and Net Income. The Company expects to see further momentum in the financial year 2021.
• In the last nine months, the Company delivered a significant return of ~142.88% and delivered higher returns compared to the benchmark Index.
• As per valuation metrics, EV/Sales & Price/Book Value multiples of United States Steel Corp are currently lower as compared to the corresponding multiples of the Metals & Mining industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 10-day simple moving average prices (USD 17.05), which reflects an uptrend in the stock and can move up further.

Key Risks

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

Financial Highlights – Q4 and FY2020 (31 December 2020) (released on 28 January 2021)

(Source: Quarterly Report, Company Website) 

• In the financial year 2020 and Q4 FY2020, the net sales for the period declined, reflecting lower product sales due to the covid-19 pandemic.
• The profitability in the fourth quarter FY2020 improved, reflecting lower operating expenses. The overall profitability for the financial year 2020 declined.
• The cash balance as on 31 December 2020 increased to $1,985 million (31 December 2019: $749 million).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown an improvement in financial performance in the fourth quarter of the financial year 2020, reflecting improvement in the trading environment. Despite the lower revenue, the profitability in Q4 improved, reflecting benefits of adaptive operations, higher prices and focus on cost management. The financial performance in the financial year 2020 declined. United States Steel has a decent liquidity position with a well-positioned balance sheet. The Company’s operational performance was not materially impacted by the impact of the covid-19 pandemic, while it resulted in the increased costs and disruption in the supply chain. The Company expects to see a further momentum in FY2021, driven by low inventories, robust demand and supportive raw material prices. The stock made a 52-week low and high of USD 4.54 and USD 24.71, respectively.

Based on the above rationale, we have given a “BUY” recommendation on United States Steel Corp at the closing price of USD 17.90 (as on 19 February 2021), with lower double-digit upside potential based on 9.28x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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