United States Steel – The Pullback Is An Opportunity

industryview Investment Summary United States Steel Corporation (NYSE: X ) is a leading provider and manufacturer of steel in the USA. The last 12 months have been volatile in terms of commodity prices and that has helped cause the YoY comparison for X to look quite honestly horrible. But it is in times like this when some of the best opportunities come up and I think X stock right now offers investors a solid opportunity to gain both exposure to the steel market but also the trend of reshoring and bringing manufacturing back to the US. A trend that is affecting a lot of industries, most notably steel as the product is used in pretty much everything. With the recent pullback in the share price, X sits now at a p/e of just 5 on a forward basis. The management of X is keen on ensuring that shareholders get their slice of the pie and have maintained a strong last few years of buying back shares. This all amounts to X deserving a buy rating at these price levels. Business Model U.S. Steel operates in three main business segments. The Flat-Rolled segment focuses on producing sheet steel, tin mill products, and galvanized steel for industries like automotive, construction, and packaging. The U.S. Steel Europe segment includes operations in Central Europe, primarily Slovakia, with integrated steelmaking and finishing facilities producing steel products for construction, automotive, and packaging. Additionally, the Tubular segment specializes in manufacturing and selling steel casing and tubing products used in the oil and gas industry for exploration, production, and transportation. EBITDA (Earnings Report) One of the most exciting segments in X right now I think is the Tubular segment. Her growth has been abundant as X is pushing to make itself established in the industry. The segment has also managed to grow into the most profitable part of the company with an EBITDA margin of 48% right now. Going into the next couple of reports, this will be in the spotlight for investors and I expect further improvements will help be a catalyst for the share price. Quarterly Result As 2022 brought challenges to the steel industry it also heavily catapulted the commodity prices for it. Almost across the board for X they experienced a decline in commodity prices, the only expectation being tubular. Operating Results (Q1 Report) I think the decline in revenues the company experienced can be largely forgiven as this volatile commodity market is not something that X can control, they simply have to go along with it and hope to capitalize as much as possible while they can. Where I am looking is at the margins instead, which have been steadily improving over the last years. In Q1 and Q2 of 2022, the net margins remained above 17% which is far higher than the 4% achieved in Q1 2023. But as margins are trending higher and demand for US steel is improving I think the 4% seems sustainable. The shift in the US steel market is still towards electric ARC furnaces which will help ensure more resilient financial performances through the cycle. US Steel Industry (Investor Presentation) I think this will result in X having more consistent earnings reports going forward and preserving margins will be easier. That should in my opinion also come with a richer valuation, which would bring about decent share appreciation from here. The sector average p/e is around the 13 mark, but I find it unlikely for X to be trading around that multiple. Instead, somewhere between 8 – 9, I find more realistic and that could be achieved if the coming quarters show consistent margins. Supporting that consistency will be ensuring partnerships with US-based customers, like General Motors . Reshoring And The Growing Demand For US Steel One driving force behind the steel market is the ongoing trend of deglobalization in manufacturing. Companies are strategically diversifying their production away from China and exploring alternative manufacturing locations like India and Vietnam. This shift helps mitigate risks related to global supply chain disruptions and strengthens operational resilience. Moreover, an increasing number of companies are reshoring their manufacturing operations back to the United States to enhance efficiency and leverage proximity to domestic markets. The US government’s incentives to boost domestic manufacturing spending further contribute to the increased demand for companies like X. Order Book (Earnings Presentation) Where X has done very well in my opinion is that they aren’t solely reliant on one industry for their revenues. Instead, they are […]

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