Commodities & Metals

Why Raised US Steel Q3 Projections Are Opening Investors' Wallets 

Paul Ausick

Published: September 18, 2020 11:08 am

Before trading opened Friday, United States Steel Corp. (NYSE: X) issued updated guidance for the third quarter. The company now expects a per-share loss of about $1.45 in the quarter. Analysts had been expecting a loss per share of $1.53.

The company also said it expects to reduce its debt load by repaying approximately $900 million in asset-backed loans by the end of September, reducing its asset-backed loan borrowing to pre-pandemic levels. At the end of the second quarter, U.S. Steel reported long-term debt and capital lease obligations of $5.7 billion, sharply higher than the $4.8 billion reported at the end of the first quarter (pre-pandemic) of this year.

After dipping about 1% or so in Friday’s premarket, U.S. Steel’s stock rose by nearly 9% shortly after the opening bell.

The share price hike is likely due to two comments in the company’s announcement. First, U.S. Steel said that market conditions that were improving in June and July “have accelerated” in August and September. Industry fundamentals are stronger and demand is rising leading to “significantly improved adjusted EBITDA in the third quarter.” In the second quarter, U.S. Steel posted an adjusted EBITDA loss of $264 million and the company is forecasting an adjusted EBITDA loss of $100 million in the third quarter.

Second, the company said it still plans to acquire the 51.1% stake in Big River Steel that it does not own. U.S. Steel acquired a 49.9% stake in the Arkansas company last October for $700 million, along with a four-year option period to purchase the remainder of the firm. U.S. Steel sees the acquisition as its top strategic priority, claiming it gives the venerable firm a mini-mill capacity to go with its long-standing integrated operations.

About 90 minutes after Friday’s opening bell, U.S. Steel stock traded at $9.20 a share, up about 9.4% on the day, in a 52-week range of $4.54 to $14.52. The stock’s consensus 12-month price target is $5.62.

U.S. Steel was one of six industrial stocks we looked at earlier today that offer value and solid upside going into 2021.