United States Steel Corporation (X) is an integrated steel producer engaged in producing and selling steel products, including flat-rolled and tubular products, in North America and Europe. It operates through four segments: North American Flat-Rolled, Mini Mill, U.S. Steel Europe, and Tubular Products.
After reporting stellar revenue and earnings in the first quarter ended March 31, 2022, X expects even better numbers in the second quarter. The company expects its best-ever second quarter with adjusted EBITDA at $1.60 billion, while its adjusted earnings are expected to come in the range of $3.83 to $3.88.
X’s President and CEO David B. Burritt said, “We expect to continue delivering record performance in the second quarter, with each business segment meaningfully contributing to profitability.”
The company expects its Flat-Rolled segment to witness strong demand, while the Tubular segment’s adjusted EBITDA is expected to rise due to better selling prices and strong demand for seamless pipes from the energy market.
Despite the hike in raw material prices arising out of the Ukraine - Russia war, the U.S. Steel Europe segment’s adjusted EBITDA is expected to grow as the rising costs will likely be offset by higher selling prices.
The company announced that it would likely utilize its surplus cash by rewarding its shareholders with share repurchases in the near term. “Our focus on strategic end markets and the continued realization of significantly increased fixed-price contracts is again expected to generate another quarter of record performance,” added Burritt.
X’s shares have declined 16.4% in price year-to-date and 12.4% over the past year to close the last trading session at $19.89.
Here’s what could influence X’s performance in the upcoming months:
Robust Financials
X’s net sales increased 42.8% year-over-year to $5.23 billion for the first quarter ended March 31, 2022. The company’s adjusted net earnings increased 214.8% year-over-year to $891 million. Also, its adjusted EPS came in at $3.05, representing an increase of 182.4% year-over-year. In addition, its adjusted EBITDA increased 142.6% year-over-year to $1.33 billion.
Unfavorable Analyst Estimates
Analysts expect X’s EPS for fiscal 2022 and 2023 to decline 22% and 67.7% year-over-year to $10.52 and $3.40, respectively. Its revenue for fiscal 2023 is expected to decrease 23% year-over-year to $16.29 billion.
Discounted Valuation
In terms of forward EV/EBITDA, X's 1.36x is 78% lower than the 6.20x industry average. Its forward non-GAAP P/E of 1.75x is 82.8% lower than the 10.24x industry average. Also, the stock's 0.31x forward EV/S is 78% lower than the 1.42x industry average.
High Profitability
In terms of trailing-12-month net income margin, X’s 22.73% is 158.8% higher than the 8.78% industry average. Likewise, its 1.29% trailing-12-month asset turnover ratio is 81.8% higher than the industry average of 0.71%.
Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROA came in at 69.32%, 27.40%, and 25.83%, compared to the industry averages of 12.91%, 7.36%, and 5.22%, respectively.
POWR Ratings Show Promise
X has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, which each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. X has an A grade for Value, in sync with its 1.63x forward EV/EBIT, which is 82.2% lower than the 9.18x industry average.
It has a B grade for Quality, consistent with its 10.18% trailing-12-month levered FCF margin, 82.2% higher than the 5.59% industry average.
X is ranked #23 of 32 stocks in the A-rated Steel industry. Click here to access X’s Growth, Momentum, Stability, and Sentiment rating.
Bottom Line
X reported record earnings and revenues for the first quarter ended March 31, 2022, and the company is confident in reporting its best-ever earnings and adjusted EBITDA in the second quarter. Given X’s discounted valuation, higher-than-industry profitability, and robust financials, we think adding this stock to your portfolio could be wise.
How Does United States Steel Corporation (X) Stack Up Against its Peers?
X has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Steel stocks with an A (Strong Buy) and B (Buy) rating: Voestalpine AG (VLPNY), Acerinox, S.A. (ANIOY), and Russel Metals Inc. (RUSMF).
X shares rose $0.36 (+1.81%) in premarket trading Tuesday. Year-to-date, X has declined -16.12%, versus a -22.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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